Mundy adopts major short on ‘expensive’ US stocks

Investec Asset Management’s star manager Alastair Mundy has made a significant negative bet on US equities as he claims the country’s stockmarket is too expensive.

The manager, who heads up Investec’s value team, has bought an S&P 500 index short, valued at 10.7 per cent of his £2.6bn Cautious Managed fund. The short bet will gain money if the S&P 500 index falls.

While Mr Mundy is not making a negative call on the US economy or companies, he said: “US equities are expensive on a normalised long-term-earnings basis and historically anyone buying the S&P 500 at this level has got badly unstuck.”

Article continues after advert

The S&P 500 currently has a price-to-earnings ratio of 18.4x, which is significantly higher than the 15.6x level this time last year, as the 27.4 per cent rise in the market in the past 12 months has not been matched yet by a corresponding rise in earnings.

The index short position has reduced the fund’s net weighting to equities to 36 per cent, nearly two-thirds of the maximum amount permitted by the IMA Mixed Investment 20-60% Shares sector’s restrictions.

Mr Mundy has been selling down UK equities and putting the money to work in Japanese stocks, where he sees less value now following the rally but he expected to be able to capture further upward momentum.

The manager explained he was unable to find enough opportunities within equities, especially in the UK market, but he was searching for ways to deploy his significant cash reserves.

Mr Mundy last month put 10 per cent of the fund into UK and US inflation-linked government bonds, bringing the cash level on the fund from a record-high position of 30 per cent down to 20 per cent.

“The sell-off in [inflation-linked government bonds] meant we put 10 per cent in them, which came out of our cash weighting,” he said.

“The [inflation-linked government bonds] have an average maturity of about 15 years, they will be a good stable part of the portfolio, and it is important to maintain the value of wealth relative to inflation.”

The index-linked bonds sit alongside gold bullion and gold-mining shares, which are also in the fund as insurance against inflation.

The manager said he did not expect an immediate spike in inflation but deemed it a “sensible thing” to insure against inflationary pressures.

The Investec Cautious Managed fund, part of Investec’s managed solutions range, has delivered top-quartile performance against the IMA Mixed Investment 20-60% Shares sector in one, three and five and 10 years.

‘Contrarian call’

Adrian Lowcock, senior investment manager, Hargreaves Lansdown: “I think this is a massively contrarian call. The US market has got a premium rating on it, but if you look at US companies compared to other companies around the world it has earned that premium. [Alastair] is not trying to make the call with pinpoint accuracy; he just sees an investment opportunity in the longer term.”