James Clunie looks to short US positions

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James Clunie looks to short US positions

James Clunie has shifted his Jupiter Absolute Return fund to its most bearish stance yet and is gearing up to potentially take even more defensive measures.

The £214m portfolio consists of 61 long positions, which benefit when a company’s share price rises, against 84 short trades, which gain when a company’s share price falls.

But as a result of the vehicle’s weightings to each position, the fund is carrying an overall net long 8 per cent position – the lowest it has ever been and down from 15 per cent at the start of the year.

When Mr Clunie took over the portfolio from Philip Gibbs in September 2013, the net long position had been roughly 25 per cent, but it has been trending down under his management.

“I am finding more short ideas than long,” he said.

“I would not be surprised if the fund went net short in the coming months.”

Most of his “ideas” on the short side are emerging in the US, primarily on the back of disappointing company earnings and negative corporate guidance.

Mr Clunie said the type of businesses he had been shorting tended to have an industrial and global focus, and were typically suffering from the slowdown across emerging markets or as a result of the headwind of a stronger US dollar.

In spite of the rally the US market has enjoyed, with the S&P 500 gaining 65 per cent in the past three years, he thought the optimism engulfing analysts expectations had been overly ambitious.

Mr Clunie cited a recent report by pension fund British Coal Staff Superannuation Scheme, which said that based on historical analysis of the US market using current valuations as a reference point, there was a two-thirds chance of making less than 3.5 per cent per annum during the next five years.

“On this basis we believe it is sensible to hold positions that aim to benefit from individual stock price movements, rather than that of the equity market as a whole,” he said.

In contrast to the exuberance engulfing the US, the fund manager said the outlook for the UK was a lot more grounded in reality.

“I can find decent and fairly valued stocks [in the UK],” he added.

Mr Clunie is running long positions in the likes of BP and specialist chemical group Alent, while his biggest short positions are in Diageo and Glencore, the latter of which he noted was battling a number of balance sheet issues.

While Europe represented “a small number of longs and shorts”, the manager had 11 per cent invested in Japan, all of which are exclusively long positions.

“There is a lot of extra cashflow in Japan,” he said.

“I can find a series of companies that are fully deleveraged, where balance sheets look solid.”

Since Mr Clunie took over the fund it has delivered a total return of just 5 per cent, but he argued he had constructed the portfolio to be able to endure any serious market volatility.

“I believe the portfolio could hold its own if the market fell 15 per cent,” he said.

“It holds no interest rate or credit risk. What I do have is stock risk, but the holdings are a mixture of long and short positions.

“I can eke out moderate gains in the current environment, but I believe the fund is robust enough to withstand change.”