Artemis’s William Littlewood managed to avoid the full impact of the market sell-off earlier this month, having slashed his equity exposure ahead of the drop.
The manager has the ability to put on ‘short’ positions, which benefit when markets fall, and can also take the conventional action of just reducing his overall exposure to the asset class.
At the end of September, the net equity exposure on Mr Littlewood’s Artemis Strategic Assets fund was 52 per cent, down from 56 per cent at the end of August and 61 per cent at the end of June.
The manager said while he would usually like to add to his equity weightings when markets fall, this time he reduced equities further.
The long equity positions on the fund were reduced to 66.5 per cent, while the short positions stayed the same at 14.7 per cent.
The subtraction of the short positions from the long ones makes the net position.
The lower equity exposure has helped so far in October’s severe sell-off, but the fund’s short positions on developed market government debt have once again hit returns, because government bonds rallied as investors bought into them as ‘safe haven’ assets.
In spite of the more bearish stance towards equities as an asset class, Mr Littlewood said he had been raised UK smaller companies exposure from 11 per cent to 13.3 per cent in September.
He pointed out that smaller companies had fallen significantly this year, which was creating value opportunities in the sector.
The manager has particularly favoured small-cap oil firms in this buying spree, arguing that “sentiment towards the UK’s small oil companies is bleak – few institutions want to own these stocks – so I expect in the long run we will make good money from these positions”.
Oil stocks have been badly hit by the 20 per cent drop in the price of crude oil during the summer.
Mr Littlewood attributed the decline to “falling demand for oil as economies struggled, accompanied by rising supply from the shale revolution in North America”.
The fall in oil stocks has hurt the Strategic Assets fund, which had 21 per cent of its equities in oil companies at the start of this year.
He said in spite of the recent purchases, oil stocks now only make up 12 per cent of the fund’s equities.
While the manager has been mainly selling equities, he has been topping up his holdings in precious metals such as gold, palladium and silver.
Precious metals have suffered even more than equities in the recent market sell-off, with gold falling by 6 per cent in September and palladium plunging by 15 per cent.
But in spite of the declines, the fund’s exposure to precious metals remained stable at 10.7 per cent because Mr Littlewood topped up his holdings following the falls.
He said: “In the past five years, we have made money in precious metals, but the past two years have been tough.
“At some stage I expect precious metals to perform well relative to both shares and bonds.
“It might take a sovereign-debt crisis to precipitate this – or the trigger might be the realisation that central banks will not be able to control bond markets forever.
“Either way, we will retain – and possibly add to – our precious metals, seeing them as insurance against difficult times ahead.”
