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Doomsday scenarios and dodging volatility: FE Trustnet’s best stories of the week

30 January 2015

Sentiment seems to have dipped this week, after the earlier ECB-inspired rally. Here’s a summary of the team’s favourite stories of the past seven days.

By Daniel Lanyon,

Reporter, FE Trustnet

Doom and gloom doesn’t seem like an overstatement to describe the financial and economic news agenda this week.

Just after European Central Bank president Mario Draghi wowed the market with his plan to revive the stagnated European economy with a $1.1trn bout of bond buying, anti-austerity party Syriza won the election in Greece and revived fears of the country leaving the eurozone.

Meanwhile, economic indicators showed further signs of slowing and worry grow that growth will start to dip in many parts of the globe.

The cataclysm prophesied by the likes of Crispin Odey and Bill Eigen are starting to sound less extreme as risks seem to be rising alongside the spectre of greater market volatility.

But that’s not all that happened last week so we’ve summarised our favourite stories below. We hope you all have a great weekend.


How Standard Life GARS plans to dodge UK election volatility

One of the largest UK-based funds is not discounting greater volatility as the UK gears up for a general election on 7 May.

Adam Rudd, multi-asset investment director at Standard Life, revealed the £23.1bn Standard Life GARS fund would be looking to exploit a weaker pound and lowering long UK equity exposure as part of its numerous alternative strategies ahead of voters going to the polls.

“We are set up to withstand any of the scenarios that we envisage. One of the things we do is to look at all historical scenarios to see what would happen if it were repeated [with positions as they are], with no more than half of global equity drawdown,” he said.

“UK equities could also be affected although it is unlikely to have much effect on global equities so what we have done in the portfolio is to have a low position to UK equities. Our UK equity beta is only 1 per cent of the fund, which is lower than it had been toward the end of last year.”

The manager believes “huge swathes” of the FTSE 100 could see material earnings pressure including oil, energy, supermarkets and utilities. 
 

Four potential doomsday scenarios for investors in 2015

Senior reporter Alex Paget brought together four potential ‘doomsdays’ and their effects on financial markets in a rather depressing article this week.

At the more extreme end was the well-known hedge funder and FE Alpha Manager Crispin Odey, who is predicting a huge and painful downturn right around the corner “that will remembered for 100 years”.

In his most recent note to investors, the manager, who founded Odey Asset Management in 1991, warned that a recession was “lurking” and that it would cause a “great deal of damage, because it will happen despite the efforts of the central banks to thwart it”.

He therefore predicts a financial crisis akin to 2008 in the not-too distant future, which will mean equity markets will be devastated.

 
Why your cautious fund has never been riskier

FE Trustnet news editor Gary Jackson also struck bearish note with a warning from multi-managers at Schroders, Rathbones and Brooks Macdonald that managing a cautious portfolio was becoming “exceptionally hard”.

The managers agreed that traditional safe havens such as government bonds are looking expensive.

Marcus Brookes, who heads up the multi-manager team at Schroders, is a notable bond bear, preferring cash and alternatives to hold against equities.

Brookes said: “The fixed income market is a real struggle for everyone. This was the main reason we produced fourth quartile returns over the course of 2014 and that may make you think we should reassess our view.” 

Schroder MM Diversity, his lowest risk fund, which currently has 31.8 per cent in cash and 29.2 per cent in alternatives. The fund, which made just 1.12 per cent in 2014 when the sector was up 4.85 per cent, only has only 10 per cent in fixed interest. 

Performance of fund and sector in 2014



Source: FE Analytics


Why with a heavy heart I’m selling out of M&G Global Dividend

FE Trustnet editor Joshua Ausden was also gloomy this week, explaining why he was reluctantly selling out of M&G Global Dividend citing an erosion in performance that tracks its rapid rise in size from £2bn to become one of the biggest funds in the UK at more than £9bn.

The fund’s manager, Stuart Rhodes, has assured on several occasions that this not the case.

“It could well be a coincidence, of course, but since these reassurances were first made, the fund’s performance has deteriorated. Bottom quartile returns of 2.34 per cent in 2014 mean it is now bottom quartile in its IA Global sector over one and three years, as well as over one, three and six months,” Ausden said.

Performance of fund, sectors and index over 3yrs

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Source: FE Analytics

However, Ausden is not planning to stay in cash for long and he eyed up two funds to potentially replace Rhodes in his portfolio.

“Two have caught my fancy however: Artemis Global Income and Invesco Perpetual Global Equity Income. Neither are like-for-like replacements for M&G Global Dividend, but one in particular comes close.”

“I’ve gone for the Invesco Perpetual Global Equity Income fund instead. Headed up by chief investment officer Nick Mustoe, the fund draws on the best ideas of Invesco Perpetual’s highly rated equity income team.”


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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.