Multi-manager  

It’s no time for risk, warns Miton’s Gray

Warning signs in markets have led Miton’s Martin Gray to claim his defensively positioned funds should be in demand.

Mr Gray’s flagship £741m Miton Special Situations fund has roughly 40 per cent in cash or cash-like assets such as government bonds as the manager said he was struggling to find any value in markets.

The manager is well-known for his bearish stance but said several indicators have made him particularly nervous about markets at present.

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He cited high levels of “one-way traffic” into areas such as high yield debt, developed market equities and property, adding that this had made volatility the lowest it has been since June 1993.

“This is not a time to be taking risk but rather a time to be very careful,” Mr Gray said.

“Why would clients want to take risk when markets have gone up so much?”

Another concern is the level of margin debt – borrowing used to buy equities – which the manager said was now higher than in 2007.

“It is very, very high but doesn’t mean the market will fall,” he said.

“There are lots of one-way bets and so the market does not have to fall back very much for there to be cash calls against margin debt, which means everyone selling on the same day.”

The manager added areas of fixed income were a major concern, highlighting extremely low yields in peripheral debt, which many investors would not have touched just a couple of years ago.

“It is crazy but it won’t end soon,” he said. “We’re in dangerous territory. The day it does end, and it will at some stage, is when the exit will look very crowded.”

The manager was bullish in 2004 when markets were “heavily under valued”, and again in October 2008 and March 2009 when he “fairly quickly piled back into equities”.

Mr Gray said when he put money to work between October 2008 and March 2009 markets rose quickly, and he soon was able to take 20-25 per cent profits.

Asked if now, with markets having risen strongly for so long, was a good time to buy his defensive funds, he said: “It is a fantastic time to buy Special Situations.”

He added funds like his, products from Troy and Ruffer as well as Standard Life Investments’ Global Absolute Return Strategies fund, should be used by advisers to “alleviate where they have got risk”.

While Mr Gray’s Special Situations fund has lost 6.4 per cent in the year to May 16, his long-term track record is strong, according to data from FE Analytics.

He was one of few managers who didn’t lose money in 2008, a year in which he returned 7.2 per cent compared with the average loss of 26.1 per cent by funds in the IMA Flexible Investment sector, according to the data provider.

“The past nine months in performance terms has been a bit hard, with Special Situations and the Strategic fund struggling a bit,” he said.