Managers turn to gold to protect their assets
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Fund managers are repositioning their portfolios to reflect their views on quantitative easing.
Star managers from Thames River and Investec have been buying gilts and long-dated bonds, and using gold shares to protect against inflation.
Thames River’s Peter Geikie-Cobb has also taken a significant bet that sterling will rebound against the euro, the dollar and the yen.
Geikie-Cobb is co-manager of the £640m Thames River Global Bond fund alongside Paul Thursby.
He has sold his medium-dated gilts and moved the fund towards the long-end of the yield curve in anticipation of gilt buybacks.
“The Bank of England is buying back gilts to increase money supply as part of quantitative easing, which should be more supportive of the gilt market,” Geikie-Cobb says.
“Issuance has been negative for the long end of the yield curve but we will not see any more until June. The lion’s share of issuance will be in the short and medium part of the yield curve in April and May,” he adds.
Dramatic swings between the twin threats of inflation and deflation are set to continue, the manager says.
“The pendulum has swung wildly in the past few months – the market is now pricing in inflation, but last year there was zero inflation. Volatility will continue but the inflation picture will be subdued with pockets of deflation as we are seeing in Japan.”
Alistair Mundy, the manager of the £1 billion Investec Cautious Managed fund, is using gold to pre-empt several possible consequences of fiscal stimulus. He has 15% in index-linked gilts and 11% in gold-mining shares as a hedge against high inflation and low economic growth.
In a conference call for investors, Mundy said that gold would act as a protective asset.
“The gold-mining shares will, we hope, protect us against a number of outcomes, for example, inflation, deflation, the printing of money, and general financial instability, by which I mean more banks going bust,” he said.
Finally, in a move he describes as “anti-consensus”, Geikie-Cobb has also fully hedged his fund back to sterling. “If we took a bearish stance on sterling at these levels we would have to buy another currency,” he says.
“We think other currencies are just as bad, but the market has priced in the bad news.”
