Four Capital’s Mike Pinggera has warned investors to avoid so-called “fantasy value” in the stockmarket, after he ramped up his cash weighting to 75 per cent.
The manager of Four’s Multi Strategy fund moved to establish a greater position in the defensive asset class before the stark falls in markets earlier this month, having already had 45 per cent in cash at the end of September.
He said his process meant when markets “start to head south” he would be challenged to assess if his investments were still warranted, and if not he would move to cash.
“Markets started to deteriorate in an orderly fashion last month,” Mr Pinggera said.
“This was due to a lack of European growth, the removal of US stimulus and the International Monetary Fund saying it is concerned about levels of growth.”
He said in spite of markets falling, investors needed to be cautious about re-entering markets. “What normally happens is moves like this are accompanied with comments from people saying there is good value and the markets are oversold.
“What this means is the manager did not sell any investments, lost money and now would like you to continue to pay them while it recovers.
“It struck me that I picked up the paper and saw almost those comments about value being out there.”
He added: “There is good and bad value but the reality is that value is an opinion, which for investors is translated as fact.
“What I have tried to do is remove some of that fantasy value. There are a lot of bad things going on and I think at the moment it is better to sit on the sidelines.”
Many of the reasons for the market falls were due to actual pressures, not just ones that are perceived, Mr Pinggera said.
“The US is removing stimulus; there is an Ebola outbreak and there is political instability with things such as IS in the Middle East,” he said.
“There are reasons to be cautious.”
The manager said he would deploy the cash into markets when he felt there was more clarity, something he claimed to be able to do quickly as he invests solely in passives.
He also has a few derivative positions, which will allow him to pick up part of a rapid rally upwards in markets prior to making a decision to invest the cash he has.
In terms of performance, Mr Pinggera said his fund would definitely have performed far worse had he not taken the action he did. “In my opinion, we are only half way through the recovery and half way normally comes with a wobble,” he said.
“When you look at stimulus being removed it is a good thing as markets are standing on their own two feet, but also it is a transitional phase, which is when markets get uncomfortable.”
