While managers such as Martin Gray have parked significant weightings in the money market in anticipation of a crash, Luthman, who co-manages the £171m CF Liontrust Macro UK Growth fund, says they will be left behind, even if disaster should befall the market. “The precedents for this kind of environment suggest that dark days don’t end in a gradual dawn, they end in a cathartic moment,” he said. “The authorities can’t take action to respond to a catastrophe until a catastrophe happens.”
“There’s no point waiting for this cathartic moment such as the collapse of the euro, because the authorities have made it clear that they will do everything necessary to support the market. Being heavily cashed up at that point would be pointless because the reaction of the market would be instantaneous and you’d never be able to put your cash back in.”
“We’re not cashed up. Managers with a lot of cash clearly win on the downside but will not be able to get it in to get the upside.”
Luthman says that the years preceding the crisis were characterised by an overemphasis on stock specific analysis and that a keen sense of wider macro mega-trends is the only way to understand which companies are going to come out on top.
“Themes now are both unprecedented and enormously powerful,” he explained. “We’ve never had a situation like this before where the world is going through colossal changes. Part of the reason the volatility is there is because the markets are trying to grapple with what the implications are and the timing of things coming to pass.”
“We all know that the global economy is adjusting and everyone is trying to work out who the winners and losers will be.”
Luthman clearly thinks the winners will be companies manufacturing the vital products needed by people in the world’s fastest growing economies.
“Half of the world’s economy is trying to look after what we’ve got and the other half is fighting to gain,” he said. “There’s a terrific battle going on between the world’s emerging economies and the higher cost economies like our own.”
The manager explains that developed economies are devaluing their currencies while wages are rising in the emerging world. This is bringing the East and West closer to competitive parity.
“This effect is not yet priced into the market,” he continued. “In emerging markets it is not just the capacity to spend which is improving but also the predisposition. Stocks like Heinz, Kimberley Clark, Unilever and Pepsi are aimed straight at that theme. This is not the Burberry end of the market – these are low-ticket, essential consumer staples.”
FE data shows that the CF Liontrust Macro UK Growth fund has returned 177.54 per cent over the last decade compared to 90.97 per cent from the average UK All Companies fund. That performance puts it comfortably in the top-quartile.
Performance of fund versus sector over 10 yrs
Source: FE Analytics
The fund has 14 per cent in consumer staples and a further 9 per cent in tobacco stocks, which the managers say is part of the same theme.