AIM’s Armstrong shorts bunds

Mr Armstrong, who runs the £49.1m IM Distinction Diversified Real Return fund, said he saw no economic strength in Europe and that the “only thing working in its favour” is valuation.

“We have been selling away the upside as we don’t think markets will run away,” he said.

By selling call options on the Eurostoxx 50 – options to buy the stocks in the index at a set price – Mr Armstrong receives a regular premium but gives up potential appreciation by the index above an agreed level.

“We have had a nice run in the markets already and so I see it as a good time to enhance returns from the market rather than expect to get more from it,” he said.

The manager, who is managing partner at the firm, has also started shorting German bunds based on the view that yields are likely to rise from their current ultra-low levels.

Ten-year German bunds currently yield 1.8 per cent, following a spate of ‘safe haven’ buying of the bonds, as investors flocked out of other more troubled European markets.

“Many safe havens are now pricing in a disaster which may not materialise. We don’t believe bund yields will fall below 1 per cent, as even Japanese yields have stayed at that level in spite of a decade of deflation,” he said.

“But there are scenarios where yields will rise significantly towards a fair yield of 2.5-3 per cent in coming years.

“The [European Central Bank’s (ECB’s) recent] Long Term Refinancing Operation is essentially [the] printing money. More non-conventional actions by the ECB will trigger a weaker euro, and inflation will result in Germany due to its relatively strong economy.

“This would push bund prices down and yields up.”

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