Multi-asset manager Nigel Baynes has tactically ditched the bulk of investment options open to him and piled exclusively into equities and cash.
The manager of iFunds Asset Management’s three risk-rated vehicles said in spite of significant gains by equities recently, there was “nothing to suggest we are seeing a market meltdown”.
Mr Baynes and his team populate their funds with passive exchange-traded funds (ETFs) and choose which asset classes and sectors to buy based on a quantitative, momentum-driven metric.
This computer-driven approach analyses 34 asset classes and produces data that helps the managers predict how prices might move in the coming months. The funds then target the top-10 asset classes in terms of their likely future price gains.
This method of fund management means the team can switch asset allocation regularly.
At the start of 2015, the managers had more than 30 per cent exposure to gilts in two of their funds, but rapidly sold this down in February after expectations of the asset class’s price altered.
Mr Baynes said the funds had also jettisoned the rest of their bond exposure earlier this year after selling the last position in an ETF that tracked a long-dated gilt index.
The manager’s view on bonds is now so negative that he is eyeing a holding in a passive fund, which would deliver positive returns if the price of gilts fell.
This fund is not yet in the top-10 assets out of the 34 analysed by the algorithm, so Mr Baynes is waiting for a potential entry point.
The move out of bonds means all investments within his portfolios are in equities and he does not expect this to change any time soon.
“There is nothing to suggest that we are seeing any kind of equity market meltdown, but that might change in the next few months,” he said.
Fears of a downturn in the markets have increased in recent weeks, given the persistent uncertainty about the state of Greece and its position in the eurozone.
The movement in markets as a result of the knife-edge negotiations about bailing out Greece allowed Mr Baynes to reintroduce some European equities.
He said the markets had “largely ignored the Greek tragedy”, something borne out by the fact the FTSEurofirst 300 index rose in May and is also up this month.
Even if Greece does exit the eurozone, the manager said he did not expect his position in the region to change drastically.
“Based on what we’ve already seen, apart from an initial knee-jerk reaction one way or another, I don’t expect much to change,” he said.
“Sentiment might be temporarily damaged, but ultimately are companies such as BMW and Mercedes going to continue to make good cars? The answer has to be yes.”
