Mark Dampier: Fund manager cites history as he bets against a Japanese recovery

The Analyst

Last week's column talked about stock markets climbing a wall of worry. It is fair to say the past five years have been tough for those trying to make bigger calls on asset allocation and the wider economy. Stock markets and economies have not performed as many expected.

Generally, I prefer to back fund managers who focus on the prospects for individual companies rather than the wider economy. That said, I am not blind to the huge manipulation of developed world economies by central banks and politicians. It may be that over the past five years there has been a brief stay of execution before a final reckoning. Therefore, there is always place in my own portfolio for a different kind of fund that focuses on some of the bigger issues. I like to think of it as an insurance policy.

This leads me nicely to the Artemis Strategic Assets Fund, which is managed by William Littlewood. Effectively this is a hedge fund but with no performance fee. Note to others in the industry – please remember, just because you short stocks it doesn't entitle you to a 20 per cent performance fee.

Mr Littlewood's economic views are not complicated. He believes either inflation or default will be the natural consequence of the policies being pursued by indebted Western governments. His total asset exposure at the moment is 66 per cent equities, 9 per cent in commodities and 25 per cent cash. He can also take "short" positions with the aim of benefiting from falling asset prices. His short equities exposure is 14 per cent, which results in a net exposure to equities of 52 per cent overall.

His main short exposure is to bonds where, using derivatives, he has shorted almost 100 per cent of the funds value. Of this, 64.5 per cent is a short position on Japanese government bonds. He believes Japan has the worst of everything: lots of debt; an ageing population; and quantitative easing on a huge scale. He cites history to be on his side, noting that in the 1930s the Japanese were in a depression. They printed money and spent it on various projects all of which worked well to begin with, but eventually it led to sky-high inflation. If the same happens again, the price of bonds would be expected to fall and the fund could benefit. To a lesser extent he is short French, UK and US government bonds.

While I have little doubt bonds will have a poor time at some stage, I have argued with Mr Littlewood for a while that I see no need to short them until we see some event to change their fortunes. These short positions have cost the fund dearly since launch, losing in the region of 20 per cent.

The cash position is held partly in foreign currencies, including the Singapore dollar, Taiwanese dollar and Norwegian krone. Unsurprisingly, he has a short position on the Japanese yen and also the Australian dollar. The Australian economy is closely tied to the fate of China and he believes that the slowing Chinese economy will have a negative impact on the Australian economy and currency.

When it comes to equities Mr Littlewood makes the point that if bond markets get hit, so will shares. He is concerned profit margins are high relative to history and will have to fall back. He believes companies could have a tough time, particularly if Labour penalises corporations as we have already seen with banks and energy companies. He is inclined to take profits into strength and buy back on any setbacks. His view is that investors are fully invested in the market and notes that in the US particularly valuations are looking stretched. At present, I am not so sure, at least in the UK where many investors seem reluctant having experienced two significant setbacks in the past 10 years.

I hold this fund in my own SIPP and have topped up a couple of times. While I haven't always agreed with Mr Littlewood's timing of investments, I have plenty of sympathy for him in his overall views. Like him, I believe gold will come back eventually and the likelihood of government default or inflation looks to me to be very high. What I don't know is when that day will be. Mr Littlewood is one of my favourite fund managers and having known him for about 20 years I am happy to entrust part of my portfolio to him. If things do go horribly wrong, I expect this fund to prosper. It is doing something different from the rest of my funds and provides a vital element of diversification to my portfolio.

Mark Dampier is head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Digital Optimisation Executive - Marketing

    £30000 - £35000 per annum: Recruitment Genius: The UK's fastest growing, multi...

    Recruitment Genius: Financial Reporting Manager

    £70000 - £90000 per annum: Recruitment Genius: A Financial Reporting Manager i...

    Recruitment Genius: Payments Operations Assistant

    £23000 - £25000 per annum: Recruitment Genius: They win lots of awards for the...

    Recruitment Genius: Telephone Debt Negotiator

    £13500 - £20000 per annum: Recruitment Genius: This nationwide enforcement com...

    Day In a Page

    Sepp Blatter resignation: The beginning of Fifa's long road to reform?

    Does Blatter's departure mean Fifa will automatically clean up its act?

    Don't bet on it, says Tom Peck
    Charles Kennedy: The baby of the House who grew into a Lib Dem giant

    The baby of the House who grew into a Lib Dem giant

    Charles Kennedy was consistently a man of the centre-left, dedicated to social justice, but was also a champion of liberty and an opponent of the nanny-state, says Baroness Williams
    Syria civil war: The harrowing testament of a five-year-old victim of this endless conflict

    The harrowing testament of a five-year-old victim of Syria's endless civil war

    Sahar Qanbar lost her mother and brother as civilians and government soldiers fought side by side after being surrounded by brutal Islamist fighters. Robert Fisk visited her
    The future of songwriting: How streaming is changing everything we know about making music

    The future of songwriting

    How streaming is changing everything we know about making music
    William Shemin and Henry Johnson: Jewish and black soldiers receive World War I Medal of Honor amid claims of discrimination

    Recognition at long last

    Jewish and black soldiers who fought in WWI finally receive medals after claims of discrimination
    Beating obesity: The new pacemaker which helps over-eaters

    Beating obesity

    The new pacemaker which helps over-eaters
    9 best women's festival waterproofs

    Ready for rain: 9 best women's festival waterproofs

    These are the macs to keep your denim dry and your hair frizz-free(ish)
    Cycling World Hour Record: Nervous Sir Bradley Wiggins ready for pain as he prepares to go distance

    Wiggins worried

    Nervous Sir Bradley ready for pain as he prepares to attempt cycling's World Hour Record
    Liverpool close in on Milner signing

    Liverpool close in on Milner signing

    Reds baulk at Christian Benteke £32.5m release clause
    On your feet! Spending at least two hours a day standing reduces the risk of heart attacks, cancer and diabetes, according to new research

    On your feet!

    Spending half the day standing 'reduces risk of heart attacks and cancer'
    With scores of surgeries closing, what hope is there for the David Cameron's promise of 5,000 more GPs and a 24/7 NHS?

    The big NHS question

    Why are there so few new GPs when so many want to study medicine?
    Big knickers are back: Thongs ain't what they used to be

    Thongs ain't what they used to be

    Big knickers are back
    Thurston Moore interview

    Thurston Moore interview

    On living in London, Sonic Youth and musical memoirs
    In full bloom

    In full bloom

    Floral print womenswear
    From leading man to Elephant Man, Bradley Cooper is terrific

    From leading man to Elephant Man

    Bradley Cooper is terrific