Artemis’s William Littlewood has been raising his exposure to global consumer stocks such as Unilever and Nestlé even as he becomes increasingly bearish on the wider market.
The manager’s overall net equity position in the Artemis Strategic Assets fund dropped from 54 per cent at the start of October to 52 per cent at the end of the month as he became more bearish on the stockmarket as it rallied in October.
The manager reduced the net equity position by adding to his short positions, which are negative bets on companies that will make money if the share’s price falls.
The fund now has 49 short positions, on companies such as Amazon, LinkedIn and Persimmon, accounting for 14 per cent of the value of the fund.
Mr Littlewood has also maintained his short positions against developed world government bonds, particularly on Japanese government debt, as he continues to think an extensive fall in developed world government debt prices is inevitable.
His bearish outlook has hurt the fund’s performance relative to peers – it is in the bottom quartile of the IMA Flexible Investment sector in the past three months and in the third quartile in one and three years – but he remains cautious and even drew parallels to recent market bubbles.
He said quantitative easing was storing up “potentially significant” problems for the future but that “complacency among investors is high” about the difficulties involved in withdrawing the monetary stimulus measures.
“This market has characteristics that remind me of 1999 and 2007,” he said. “Corporate profits are barely growing and economies are flawed – yet equities are rising.”
“In the US, a number of stocks that can be valued only on revenues or the number of users has risen sharply this year. Much like in 2000, investors do not worry about their profits as long as sales are rising.
“As other investors get even more bullish, we will probably become more cautious,” he added.
However, while he remains cautious in general, Mr Littlewood said he had been opening positions and adding money to existing positions in global consumer stocks such as Nestlé, Reckitt Benckiser, Coca-Cola and Unilever.
These stocks have performed extremely well in recent years as investors increasingly bought into them due to their status as perceived safe havens.
However, the stocks’ popularity has made them expensive and their share prices have fallen in recent months as investors worry about their valuations.
Mr Littlewood said he had always liked the companies due to their “recurring revenues and high barriers to entry” but that until recently “they were on price/earnings ratios that were too rich for us”.
Now that the shares have fallen slightly, Mr Littlewood has bought in and he said he would add to the positions if the share prices fell further.