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Robin Geffen: Why I have no UK equity exposure in my global funds

15 December 2014

Neptune’s Robin Geffen is avoiding UK equities at all costs going into next year as he believes the general election in May will create huge amounts of volatility in the market.

By Alex Paget,

Senior Reporter, FE Trustnet

The general election next year will cause massive uncertainty in the UK equity market, according to star manager Robin Geffen, who holds no FTSE-listed stocks in his various global funds as a result.

The UK goes to the polls in May next year and a number of industry experts, fund managers and analysts have warned that equity market volatility will spike in the build-up to the election as investors get concerned about the outcome – whether it be a continuation of the current status quo, the rise of UKIP or and Labour-led government.

However, Geffen has gone a step further than most and, because he is so concerned about the result, he has a zero per cent weighting to the UK in his Neptune Global Equity and Neptune Global Alpha funds.

“I have no exposure to the UK at all and I’m not unhappy about that,” Geffen (pictured) said.

“I see ahead of us the most difficult general election in several generations, which has been further complicated by Alex Salmond’s determination to rip the heart out of Labour’s vote in Scotland. We have UKIP who will, despite what many pundits think, take seats across the board from all three major political parties and you get left with a serious political conundrum.”

“Markets don’t like uncertainty and there is massive uncertainty in the political landscape in the UK. Massive uncertainty.”

There have been a number of managers who have warned about a spike in volatility as a result of the election next year.

Jupiter’s Steve Davies said managers will be studying opinion polls more than profit and loss data over the coming months while Old Mutual’s Richard Buxton, who is renowned for his more bullish predictions, warned that equities will remain broadly flat – or down – in the first half of 2015.

Geffen’s major concern is that political uncertainty will mean sterling, which had previously been very strong relative to the dollar, will continue to weaken like it has done over recent months. Sterling currently stands at $1.55.

Performance of sterling relative to the US dollar

Source: FE Analytics 

“We only need to see a slight wobble in the political landscape in the UK and sterling could fall to $1.40 or $1.35,” Geffen said.  

“Nobody on the sell-side and certainly [no-one] on the buy-side is even thinking about the implications of that. But for global equities, big moves in currency are very expensive if you get on the wrong end of them.”

Geffen is renowned for making punchy calls within his global funds and while this means they have tended to be more volatile than others, it has meant they have considerably outperformed over the longer term.

According to FE Analytics, his £440m Neptune Global Equity fund has been the fifth best performing portfolio in the IMA Global sector since its launch in December 2001 with returns of 229.1 per cent, beating its benchmark – the MSCI World index – by 130 percentage points in the process.

Performance of fund vs sector and index since Dec 2001

Source: FE Analytics 

It is also top quartile over 10 years, though it has slipped into the third and fourth quartiles over one, three and five years as a result of its relatively lacklustre returns in 2011, 2012, 2013 and so far in 2014.

Nevertheless, his Neptune Global Alpha fund has topped the IMA Flexible Investment sector since its launch in December 2001 as well.  

Though Geffen is bearish on the UK market, he is bullish on a number of global markets – one of which is the US.

While he says the US Federal Reserve is likely to push up interest rates next year, which could cause a brief pull-back in the S&P 500, he thinks that a rate hike is a bullish message as the economy is strong.

He also says that though the S&P 500 has broken through its record high this year – and even though it is up 15 per cent year to date – it will be one of the best performing markets in 2015 and therefore holds 52 per cent of his Global Equity fund in North America.

“People think just because the market is at a record high, it must be expensive,” he said.

“However, compared to October 2007 and March 2000, it is not expensive whether you look at it on a dividend yield basis or fundamentals like net debt to EBITDA, operating margins, unemployment or the US two to 10 year spread.”

He added: “It is not expensive. Yes, it is at an all-time high, but it is there for a very good reason.”

As Geffen is bullish on the US’s growing economic strength, he is targeting North American industrial and construction equipment stocks within his funds.

The manager is also very positive on Japan because he thinks prime minister Shinzo Abe, who recently won another super majority at the polls, will succeed in generating inflation. Japanese equities, which have lost money so far this year, account for 30 per cent of his Global Equity fund.

“I’m really excited about Japan and it takes a ‘golden-oldie’ like me to remember the excitement about investing in Japan when people actually wanted to buy Japan. The largest unit trusts in the 1980s were Japanese funds.”

“What we are seeing today is a really classic reflation of financial assets going on and it’s incredibly exciting.”

India is the other major market Geffen is bullish on. He sees cyclical headwinds in most emerging markets, but India is a different story altogether as prime minister Narendra Modi’s reforms are likely to be an economic game-changer.

Performance of indices in 2014

Source: FE Analytics 

Though the MSCI India index is up 30.82 per cent this year, Geffen holds more than 10 per cent of his funds in the country’s equity market as he thinks that upward trend will continue.

“India is not a one-year story, though it is going to be very good over one year and over two years. This is a five and 10-year story and my global funds reflect that.”

The Neptune Global Equity fund has an ongoing charges figure (OCF) of 1.84 per cent. Neptune Global Alpha has a 0.95 per cent OCF.


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