Multi-asset managers have said they were only able to mitigate losses rather than avoid them in June during one of the most “challenging” and “brutal” months for risk assets.
Equities, bonds and commodities became entwined in investors’ minds and all took precipitous drops in June as markets reversed some of the gains made during a period of relatively low volatility during the prior 12 months.
Peter Doherty, manager of the £31m Tideway Global Navigator fund, said he was not able to avoid losses for the month in spite of putting half of his portfolio in cash ahead of the drops in markets.
“June was a particularly challenging month across most asset classes, with bond, equity and commodity prices all falling sharply,” he said.
“The single safe haven – cash – and our 50 per cent allocation to it, was not sufficient to stave off losses.”
The manager said mass selling of bonds – sparked by comments from Federal Reserve chairman Ben Bernanke about tapering the amount of assets the central bank will purchase – showed “how limited the market capacity” was for the asset class when “sell orders flood in and funds are liquidated”.
“In particular, the highest quality emerging market bonds suffered heavily, as did US Treasury inflation-protected securities (Tips) – neither of which featured in our portfolio,” Mr Doherty said.
“These assets bore the brunt of a sort of multiplier effect on the downside, where price falls accelerated due to a lack of buyers.”
Steve Brann, founder and fund manager at Apollo Multi Asset Management, agreed it had been an extremely tough month as “confidence evaporated and was replaced firmly by uncertainty”.
“In what felt like a brutal month for risk assets, there was nowhere to hide from the sell-off that started in late May which was sparked by suggestions that the current quantitative easing programme would be wound down,” he said.
“The combination of end-of-quarter profit-taking, weak data from China and fears about the withdrawal of stimulus from the US, all conspired to push markets down.”
Mr Brann said his £32m Cautious fund delivered a loss of 1.9 per cent in June and named his “stand-out performers” as James Hanbury’s now soft-closed £629m CF Odey UK Absolute Return and Ian Heslop’s Old Mutual Global Equity Absolute Return fund, which gained roughly 1.1 per cent each in the month.
Toby Ricketts’ Margetts Providence Strategy fund had built up 18 per cent in cash going into June – nearing double its typical weighting of 10 per cent – but lost 3.6 per cent during the month.
In spite of this, the manager said following falls in equity markets, “short-term buying opportunities are emerging”, adding that he would continue to increase his equity weighting tactically.
“We believe the falls in markets are now providing a good buying opportunity, particularly in the equity markets, and we are using the timing to strengthen our portfolios in areas we like,” he said.
“We note that large amounts of money have now exited the markets through trader action and this will soon be finding its way back into markets.”