With less than two months to go for investors to use their full ISA allocation, the flurry of activity colloquially known as ‘ISA season’ is upon us and many are eyeing up funds to add to in their portfolios.
However, Warner is staying 100 per cent in cash because of the overwrought standoff between Greece’s newly elected government and the ‘troika’ of the International Monetary Fund, European Commission and the European Central Bank, which partly holds sway of Greece’s national debt following its 2011 bailout.
Syriza recently came to power after campaigning against austerity measures imposed by the troika on Greece following the disastrous period that led up to, and was a primary cause of, the European sovereign debt crisis of 2011.
Fund managers and commentators, while widely concerned about higher uncertainty in an already fragile European equity and bond market, have generally also had their sentiment propped up by the European Central Bank’s (ECB) quantitative easing programme.
But Greek government bond yields have jumped this morning after the ECB announced it would stop accepting Greek bonds in exchange for funding. The country’s stocks are also down almost 10 per cent.
Warner says he expects the wider market to become increasingly concerned about the tense standoff, despite borrowing costs only narrowly increasing in recent weeks.
“I am quite bullish for this year as a whole, in fact, but not a shorter term basis. The ECB’s QE is overriding the Greek political negative and I suspect that over the coming six weeks or so that will reverse,” he said.
“We will have a setback [in markets] coming up over this period. It depends in size on what is the exact cause but it could similar in magnitude to December very easily.”
The FTSE All Share fell almost 8 per cent in one week in December, its second stumble in the last quarter of the year.
Performance of index in Dec 2014
Source: FE Analytics
Warner says he agrees somewhat with FE Alpha Manager Crispin Odey’s hypothesis that the market is not taking into account structural weakness and is closely eyeing the manager’s long/short Odey Swan fund.
“Even though he is quite bearish he is still making money because he is doing things with currency pairs. His main thesis is that things are going to slow down and anyone connected to China, ie Australia, South Africa etc, will get clobbered. If the Australian dollar falls further then he will make quite a lot of money out of it – it has been one of his biggest themes on a short-term basis.”
However, Warner says he will more likely buy an equity income fund on a longer term basis.
“I’m getting on a bit and so if the worst comes to the worst [and markets fall] at least I’m getting an income. One of the better ones at the moment is the Royal London UK Equity Income fund, managed by Martin Cholwill.”
He says he likes it from a total return point of view but also because of its income-paying credentials.
“A good fund manager in that sector is always looking for something out of favour, so they are buying cheaper than the rest of the market on an ongoing basis. Forever and a day I like this sector. Looking back historically, if you don’t need the income and you are accumulating it, a lot of returns in markets come from dividends,” he explained.
“If you are getting 3.5 to 4 per cent from the fund you’re quids in, at least when you compare it with a building society, as long as you don’t worry about the capital oscillations. On a longer term basis I don’t think you can beat something like that.”
Cholwill has been manager of the £1.7bn fund since March 2005, since which it has returned 157.61 per cent compared to an IA UK Equity Income sector average of 101.24 per cent and a gain in the FTSE All Share of 107.06 per cent.
Performance of fund, sector and index since March 2005
Source: FE Analytics
This gives it the second best return in the sector over this period. It falls behind the £570m Unicorn UK Income fund, which has given investors an extra 40 percentage points worth of returns.
Cholwill is also top decile over three and five years, but falls to second decile over one year.
The fund has a clean OCF of 0.67 per cent and is currently yielding 3.54 per cent.
