It’s bleaker than you think, says star manager Gray
MAM’s star fund manager says that stimulus measures are going to have little effect and that more needs to be done to help small companies make investments in their business.
By Mark Smith, Senior Reporter
Monday July 02, 2012
Global growth is going to be lower for much, much longer than the majority of people think, says FE Alpha Manager Martin Gray
, who has shrugged off the recent surge in equity markets as irrelevant.
The manager of the top-performing CF Miton Special Situations Portfolio
says he has little faith in the global recovery getting on track any time soon.
“I can’t see where normal growth is going to come from,” he commented. “Predictions of sub-par growth for 10 years are a little optimistic for this cycle.”
Gray’s comments refer to Bank of England Governor Mervyn King’s bleak forecast last week that the country was not yet even half-way through the financial crisis which began in 2007.
King announced a ‘funding for lending’ scheme last month which could make as much as £80bn available for small businesses being denied loans from the stricken banking sector. The governor is also in favour of pumping a further £50bn into the UK economy through quantitative easing.
However, Gray doesn’t believe that the government’s stimulus measures are going to have the impact that investors are hoping for.
“While we applaud what was said in the Mansion House speech the reality is that small businesses, starved of cash and struggling to make a profit are going to find it very hard to get lending anyway,” he said. “And those in a good position, who are thinking about making investments in their business might not want to take the risk of gearing up their companies when there is no guarantee of economic growth.”
“I’m not sure how to get out of this spiral unless the government is prepared to write down any downside on the debt.”
The fund manager had 33 per cent and 36 per cent in cash in his Strategic Portfolio and Special Situations portfolios respectively as of 31 May, and has been bearish for some time.
His record during this crisis has been impressive. Data from FE Analytics
shows that his Strategic portfolio has returned 32.26 per cent over the last five years while his Special Situations portfolio has returned 29.5 per cent. The average fund in IMA Flexible Investment
has lost 1.27 per cent over that period.
Performance of funds versus sector over 5-yrs
Source: FE Analytics
“For some while we’ve been avoiding the pitfalls rather than chasing the upside. I’d like to be making more than 5 per cent a year but sadly our returns over the last five years have come from low risk assets,” commented Gray.
“I’ve used the recent sell-off to add to positions in Asia Pacific and at the beginning of June we took profits on gilts. I wouldn’t dream of going short on gilts in this market but yields are very, very low so we took unbelievable profits.”
“I’d love to be making my portfolios more aggressive but I find after thinking about a trade it’s not worth the risk. I don’t want to stake my clients’ money on uncertainty. You can’t run money making uncertain bets on the eurozone.”