The Bloxham Midas Global Absolute Return fund has launched with 75% in cash following fears of global contagion from the troubles in the eurozone.
Kevin McConnell, the fund manager, says the global equity vehicle is 12% net long in its equity positions, but is cautious on the outlook for markets.
Within the eurozone, he says Spain is likely to need a bailout in January or February.
Despite having lower public debt than Greece as a proportion of GDP, Spain has a large deficit and needs to tap bondholders even as they flee peripheral eurozone countries.
According to McConnell, serious problems in the Spanish banking sector are also diminishing the number of buyers, while private sector woes are hitting state revenues. (article contines below)
Many Spanish banks have depended on the European Central Bank for funding since the outbreak of the Greek crisis in the spring.
McConnell says the risk of international contagion is underestimated. He says quantitative easing could push asset prices towards bubble territory.
In America, he says active managers can be relatively powerless to make markets more efficient in the face of massive passive inflows into markets.
He says recently low levels of volatility suggest complacency in the markets. Strategies which can exploit shifts in volatility should make considerable returns over two years betting that volatility will rise, he says.