Discretionary manager OCM sells out of UK equities
Amid a risk-reduction drive, discretionary manager Jason Stather-Lodge has sold out of two funds run by Mark Barnett and Richard Watts, even though they are “exceptionally good”.
The OCM Wealth Management chief investment officer said he now had 38 per cent of his second-most aggressive portfolio in cash – the highest cash level out of the four portfolios he runs.
Mr Stather-Lodge said he had moved to sell out of his direct UK equity holdings completely because the underlying managers he held would always remain close to fully invested. He now only has a minor amount of indirect exposure to UK equities through holdings such as global funds.
The move involved selling Mr Watts’ top-performing £1.7bn Old Mutual UK Mid Cap fund and Mark Barnett’s £12.8bn Invesco Perpetual High Income fund.
“As a result we have reduced our directional UK exposure to zero by selling the Old Mutual UK Mid Cap fund and the Invesco Perpetual High Income fund,” he said.
“These are both exceptionally good funds, but will not and cannot sell to cash and hold cash to any large part due to their mandates,” he said.
“The mandates [have a long holding period for stocks], as is the case with the majority of funds unless they are absolute return or hedge funds.”
Mr Stather-Lodge said the move to sell down UK equities meant his four-strong Outcome Based Investing funds had 21 per cent, 22 per cent, 38 per cent and 32 per cent in cash respectively.
“As we pass the first 100 days of 2015 we have seen solid returns in the portfolios we run for our clients across the risk scale,” Mr Stather-Lodge said.
“It could be argued that, with global indices currently looking toppy, bubbles have now been created in every asset class and in every sector globally – even Latin American equities in recent weeks.”
The manager added he was now “ready to reinvest when the bubbles burst over the coming weeks”.
“Although we clearly cannot time this exactly, protecting the profits, using cash and taking a FTSE 100 option as a hedge that will make money as the index falls, is the OCM way,” he added.
The manager acknowledged having so much cash could mean he was “leaving fat on the table” in a rising market, but said “we only make these calls when growth has given returns either at or above expectations” and when the likely gains are set to be “relatively small”.
“Also, we tend to make these calls at the same time as we cyclically adjust the portfolios and are therefore looking to sell expensive assets, lock in profits, and buy other assets that we believe offer value,” Mr Stather-Lodge said.
The four OCM funds target a rising level of annual return from 5 per cent to 10 per cent over a three-year period.
