Mam Funds’ Callow exits equity hedges
Manager takes profits on hedged positions and boosts equities across the board.
Mam Funds’ Simon Callow has taken profits from hedging positions in his £196.6m CF Midas Balanced Growth fund.
The fund has benefited from holding the hedging positions - bets that equity indices will fall in value - in recent months as markets have capitulated to concerns surrounding the eurozone sovereign debt crisis. In May the UK’s FTSE 100 index shed 7.3 per cent fall, its largest monthly decline since February 2009.
At the same time two-year German government bonds, known as bunds, saw their yields turn negative as investors were willing to pay to lend to the ‘safe haven’ government.
The flight to quality out of riskier assets and into safe havens was driven partly by the first round of the Greek elections, which saw no party win an outright majority and raised the spectre of a potential collapse of the eurozone.
“Consequently, we are gradually increasing our equity exposure, funded by realising profits on some of our hedging instruments,” said Mr Callow.
To take advantage of the May market falls, Mr Callow said he added four direct UK equity positions and adopted a new position in the £35.4m BlackRock Continental European Income fund run by Andreas Zoellinger and Alice Gaskell.
“We now find ourselves in the situation where there is significant risk premium on offer to those investors willing to embrace it and tolerate short term volatility,” Mr Callow said.
“The future of the eurozone is as uncertain as it has ever been, which has had the effect of driving the euro lower and pushing the dollar higher, something from which the fund has benefited.
“Ultimately, we believe that European policymakers will do the right thing - it is just a question of how hard they need to be pushed before they act.”
Mr Callow said the four UK equity positions he added included Fenner, a world leader in reinforced polymer technology, and housebuilder Persimmon, which he said recently announced its intention to return “significant sums” of cash back to shareholders over the next 10 years. The final positions were United Utilities and international brewer SAB Miller. These additions took the fund’s weighting in UK equities to roughly 31 per cent of its investments.
Mr Callow said he is also seeing “compelling value” in Japanese and emerging market equities and increased existing positions to reflect this.
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