DFM tackles bull market with alternative investments
With a current 33 per cent weighting in its defensive portfolios towards alternatives, John Bellamy, portfolio manager at discretionary fund manager Waverton, said the firm is backing this area in a bid to use investment solutions other than government bonds.
Speaking to FTAdviser, he explained that the investment house has held a “dim view” of gilts for a while, and that since inception of the portfolio models, the firm has held alternatives at about a 25 per cent level.
Mr Bellamy said that the IFA market in general is getting a bit concerned about the length of the bull market, so to address this, Waverton has being using alternatives such as hedging strategies, infrastructure, aircraft leasing and other catastrophe insurance, which he admitted are “not without risk”, but when blended together have a lower level of volatility.
“I think that’s a real theme at the moment. We know it might not be imminent, but at some point the markets are going to suffer a setback and you may not be able to defend yourself in bonds because the direction of interest rates will be going against you; so you need to think more broadly about what asset classes to use to give yourself protection.
“Anybody who has ever worked through this environment has always had government bonds as the anchor to their portfolio – that was it, that was your safety net, you always diversified into government bonds and through the bad times they saw you okay.”
Mr Bellamy said that the industry is probably moving towards a new investment environment now where this way of thinking will be redundant, as interest rates are at the lowest levels ever seen and at some point they will turn, although it is hard to tell how soon this will happen or how sharply.
He added that the hurdle a discretionary manager has had to get over with some IFAs, introducers and clients is that most people associate alternative investments with riskier strategies.
“We have very low exposure to property, bricks and mortar is very low, we have no direct commodity exposure, and the global macro hedge funds - again the exposure is very low - so it is all about lower risk strategies just trying to eek out a return over and above that cash, but most importantly with little or no correlation with equities or bonds.”
Mr Bellamy concluded that in the fixed income exposure a small portion is allocated to government bonds, but that they are effectively so short dated that they are equivalent to cash.
ruth.gillbe@ft.com
