William Littlewood took some time out of the industry in 2000, following fantastic success running the Jupiter Income fund in the 1990s.
He returned in May 2009, to launch the Artemis Strategic Assets fund. Taking advantage of new legislation, he was able to use many of the tools previously only available within hedge funds. This includes the ability to short investments to profit from falling prices.
Mr Littlewood remains concerned over slowing global growth and his outlook is more cautious than it has been for some time. As a result, net equity exposure within the fund has been reduced from over 60 per cent a few months ago, to around 49 per cent currently – with potential to fall further. US equities have been the main casualty, with the manager selling a large number of holdings in this area. Of the equities remaining, he favours small and mid-cap companies, increasing exposure to this area by 10 per cent over the past year.
As a contrarian investor, Mr Littlewood will often buy stocks in a falling market. His interest has been piqued by small-cap oil and gas names, which are widely unloved. He admits they could be in trouble if the oil price falls further; these are illiquid holdings, so he has taken only a small position.
That he is currently finding very few long-term investment opportunities in the market says something about his current mood. Many of the stocks he has recently purchased have been short-term opportunistic trades, such as investments in Just Retirement and Partnership. Following the announcement of government pension changes, the share prices of both companies dropped significantly. He believes, and I agree, that annuities (especially enhanced annuities) are still very relevant and retain a place within any pension proposition. Mr Littlewood viewed the extent of the sell-off as an over-reaction. Combined with their huge discount to asset value, this gives him confidence the businesses will survive.
Over the past three years, and since its launch in May 2009, the Artemis Strategic Assets fund has performed better than cash, but lagged behind the FTSE All Share index. The main drag on the fund’s performance has been “short” bond investments. The shorting of bonds is my only bone of contention with Mr Littlewood. The fund would have performed broadly in line with the FTSE if it weren’t for these positions.
However, he retains his belief that the government bond prices of developed markets, particularly in Japan, have been driven artificially higher, partly owing to the effects of quantitative easing. While he can’t predict with certainty the exact timing, he continues to believe prices will fall. He has reduced the short position in US bonds but increased the fund’s allocation to French and Italian bond shorts. Japan continues to be the largest call, accounting for around 60 per cent of the short bond positions.
Mr Littlewood also has the flexibility to hold other assets in the fund, such as currencies and commodities. Currency exposure is biased towards Asian nations, which do not have the same issues with excessive debt as we do in the West. He believes the euro, yen and sterling are set to weaken and has positioned the fund to benefit from devaluation in these currencies.
Around 11 per cent of the fund is invested in commodities, predominantly precious metals, gold being the most significant investment. As the price has fallen from a high of almost $1,900 in September 2011, Mr Littlewood has been increasing the fund’s exposure. Gold is considered a store of value that cannot be debased. It is held partly to diversify the portfolio against the risk associated with excessive global debt and equity market volatility.
I have a large weighting to the Artemis Strategic Assets fund in my own Sipp. Mr Littlewood is doing something very different to most other managers and so I hold this fund to diversify my portfolio. Although I haven’t shared his view on shorting bonds, I do share his longer-term strategic thinking.
His story highlights just how hard timing the market can be. I still consider Mr Littlewood to be one of the best fund managers I’ve met in my 30 years in the industry.