Spear (pictured), managing director at Spear Financial, is worried about the high levels of correlation across the equity, bond and commodities markets and has reduced the size of a number of positions in his own portfolio as a result.
Although he accepts that he is not going to make any money by sitting on the sidelines, he says it is the best strategy at the moment. "You’re not going to get your fingers burned with cash. While it’s not going to make you anything, for me it is just a waiting game," he said.
"There aren’t any areas I have been investing in recently – Japan has been going strong, European equities are cheap but there are issues there and though I don’t expect a drastic pull-back in North America, I’m questioning how much upside potential there is left."
"I think it is going to be one of those summers where you are better off waiting. I don’t think investors should try to rush or call the market, it’s just too risky," he added.
Spear says he made a number of changes to the weightings within his portfolio, for instance reducing his £40,000 position in Invesco Perpetual Global Financial Capital to £10,000. He has also recently sold completely out of FE Alpha Manager Harry Nimmo’s Standard Life UK Smaller Companies IT because they had both delivered him good returns.
Spear is not just building up his own cash weighting: he says he has moved his clients' money out of a number of products, including FE Alpha Manager Richard Woolnough’s £15bn M&G Optimal Income fund.
"With the M&G Optimal fund, it is just so big," he said.
"It has had a really good run and I’m not pulling my clients' money out because of its performance. However, multi-managers and institutional investors have put in tens of billions of pounds into the fund, but if they see any concerns in the future they will want to sell those tens of billions of pounds."
"It has been a very well used fund, and for good reason. However, Woolnough himself said he doesn’t want to take any more money in. The question is, can he actually raise the necessary capital required to meet redemptions if that were to happen?"
The issue of fund size has been well-documented recently, with Woolnough telling FE Trustnet that the enormous inflows into M&G Optimal Income were affecting his day-to-day work.
It is easy to see why his fund has attracted so much investor attention. It was launched in December 2006, since when it has been the best-performing fund in the IMA Sterling Strategic Bond sector, with returns of 76.14 per cent.
Performance of fund vs sector since Dec 2006
Source: FE Analytics
The five crown-rated M&G Optimal Income fund is also a top-quartile performer in the sector over one, three and five years.
Spear is well-aware that his clients and other investors still want exposure to the bond market. Because of that, he is maintaining a weighting to the Invesco Perpetual Corporate Bond fund. He says that although it has £5.5bn in AUM, it is better equipped for periods of illiquidity.
"I think we will stick with the Invesco Perpetual Corporate Bond fund," he continued.
"It is a good fund and the managers have been reducing duration within the fund for liquidity reasons. They also have a high exposure to financials, which I like," Spear added.
The Invesco Perpetual Corporate Bond fund has been managed by the highly experienced duo of Paul Causer and Paul Read since 1995, with Michael Matthews joining the team in March 2013.
The fund is a top-quartile performer in the IMA Sterling Corporate Bond sector over 10 years, with returns of 74.3 per cent, beating the average fund by nearly 25 percentage points.
Performance of fund vs sector over 10yrs
Source: FE Analytics
The fund also boasts top-quartile returns over one and five years and it is second-quartile over three.
It offers investors a yield of 4 per cent. The high exposure to financials that Spear mentioned is apparent in its top-10 holdings, which include the debt of Lloyds Banking Group, Barclays, HSBC and Santander.
It has an ongoing chargers figure (OCF) of 1.18 per cent and requires a minimum investment of £500.