Cazenove’s Marcus Brookes says there is a severe lack of bearish equity managers in the current environment, with other experts agreeing that it can be a problem for investors hoping to diversify their portfolios.
He recently told FE Trustnet that he and his co-managers on the Cazenove Multi Manager range are maintaining a high exposure to cash as they see no value in most areas of the bond market and because they feel the majority of equity managers are becoming overly positive.
"If you can find a bearish manager, please let me know," Brookes said.
Joanna Shatney, head of US large cap equities at Schroders, agrees. Although she is bullish herself, she says it is disconcerting that the overwhelming majority of fund managers are taking on more risk.
"It is very hard to find a bear here in the US. It’s not that I think people are becoming complacent, it is just always one of my concerns," she said.
Underlining her point, in an FE Trustnet article earlier this morning FE Alpha Manager John McClure was the latest in a long line of managers to predict a bull run for markets.
There are some equity managers who are bucking this trend, however – FE Trustnet reveals some of these below.
Trojan Income
Gavin Haynes, managing director at Whitechurch, says that although investors are not becoming euphoric, it is slightly worrying that bearish fund managers are now few and far between.
He says that if investors do want some more defensive funds in their portfolio, they should turn their attention to FE Alpha Manager Francis Brooke’s Trojan Income fund. Haynes says that like his colleague Sebastian Lyon, Brooke tries to deliver above average-returns with below-average volatility.
At the last count, Brooke had a high 8.3 per cent weighting to cash in his five crown-rated Trojan Income fund.
He also has a high exposure to less economically sensitive dividend-paying stocks, with the likes of GlaxoSmithKline, Unilever and British American Tobacco all featuring in his top-10.
Trojan Income has returned 122.10 per cent since its launch in September 2004, compared with 111.62 and 102.98 per cent from the FTSE All Share and IMA UK All Companies sector, respectively.
Performance of fund vs sector and index since Sep 2004
Source: FE Analytics
The fund has lagged behind its peers in the recent rally – it was a bottom-quartile performer in 2012 and is also bottom quartile so far this year.
However, it is in falling markets that Brooke really proves his value. The fund lost just 12 per cent in 2008 while the market lost 30 per cent. Trojan Income delivered positive returns in the turbulent year of 2011 while its peers and benchmark both lost money.
Trojan Income is officially soft-closed to new investment, though it is available via certain fund platforms. It is yielding 3.85 per cent.
Newton Global Higher Income
"Another fund that comes to mind is James Harries’ Newton Global Higher Income," Haynes said.
"That fund is still very defensively positioned, as the manager is concerned about whether the global economy can stand on its own two feet."
The £4.1bn Newton Global Higher Income fund has a much lower 2.2 per cent cash weighting than Trojan Income.
However, Harries’ fund is still set up for a tough economic backdrop. He is currently running large underweight positions in pro-cyclical sectors such as financials, basic materials and consumer services.
The fund has performed well since launch in November 2005.
According to FE Analytics, it has been a top-quartile performer in the IMA Global Equity Income sector over that time, with returns of 102.15 per cent, comfortably beating its FTSE World index benchmark.
Performance of fund vs sector and index since Nov 2005
Source: FE Analytics
However, the manager's more negative view on the world has caused the fund to struggle more recently.
It registered top-quartile returns in 2006, 2007, 2008 and 2011, though it has lagged the sector and its benchmark over the past two calendar years as market sentiment has turned more risk-on.
Newton Global Higher Income offers a yield of 4.33 per cent. It requires a minimum investment of £1,000 and has an OCF of 1.13 per cent.
CF Ruffer Equity & General
Another fund worth mentioning is CF Ruffer Equity & General, run by FE Alpha Manager Alex Grispos.
Although the fund sits in the IMA Flexible Investment sector, it only holds equities and cash.
Grispos has a fairly unique style, building up his cash pile as markets go up so that he can take advantage of any corrections that occur. It currently has 27 per cent in this asset class.
As a value investor, he buys what he perceives to be good quality out-of-favour stocks when they get hit during periods of volatility.
"We aim to construct a portfolio which is likely to behave satisfactorily in a balanced way under most macro conditions," Grispos said in a recent note to investors.
Grispos’ unusual strategy has paid off over the long-run. Since he took over as manager in March 2008, CF Ruffer Equity & General has been the best-performing portfolio in the sector, with returns of 75.88 per cent. This is over 30 per cent more than the returns of the FTSE All Share.
Performance of fund vs sector and index since Mar 2008
Source: FE Analytics
The CF Ruffer Equity & General fund also has the best Sharpe ratio in the sector over that time and is a top-quartile performer in terms of its maximum drawdown, downside risk and annualised volatility.
The fund requires a minimum investment of £1,000 and has an OCF of 1.26 per cent.
