InvestmentsJan 16 2019

Volatility prompts £3.5bn fund manager to turn defensive

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Volatility prompts £3.5bn fund manager to turn defensive

Brutal stock market falls in December have prompted the manager of a £3.5bn global equity fund to change course and buy defensive shares.

Jacob de Tusch-Lec, manager of the £3.5bn Artemis Global Income fund, had said in a note to investors at the start of December that it was "impatient" to buy the shares of defensive companies rather than wait for market sentiment to turn.

He blamed such "impatient investors" for driving down the valuations of more economically sensitive stocks.

But in his latest note to investors, out this week, Mr de Tusch-Lec said December’s equity market "rout" had prompted him to buy defensive shares, and sell shares with exposure to the global economy.

He wrote: "Given the weaker economic data and the clear signals from the market, we have added to our holdings in defensives and to bond proxies. But we are conscious that – at the moment – there is nowhere to hide and that we shouldn’t act too dramatically."

He said December was a month in which his fund "didn’t fair well".

His relatively optimistic outlook on the market to date has resulted in a period of underperformance for the giant fund, which has lost 13 per cent over the past year to January 16, compared with a loss of 5 per cent for the average fund in the IA Global sector in the same time period, according to data from FE Analytics.

Mr de Tusch-Lec, who previously worked as an economic lecturer ,said: "What changed in December is that there must now be a threat that the fear in financial markets carries over into the real economy – that talk of a recession becomes self-fulfilling.

"We would normally expect markets to fall in anticipation of – or in response to – a recession. We must now give credence to the idea that we could get a recession because markets have fallen. This would not be the first time a financial shock has led to an economic downturn."

He said he still regarded it as likely that the world avoids recession this year, and emphasised he was not just buying defensive stocks.

Sebastian Lyon, who runs the £4bn Troy Trojan fund, has been cautious on the outlook for the global economy for some time.

He said he regards the chances of a recession as quite high because on 75 per cent of occasions when the US Federal Reserve increased interest rates for a sustained period of time, as it is presently doing, the outcome had been a recession.

Mr Lyon said: "We head into 2019 with the most conservative positioning for a decade."

But Guy Stephens, technical investment director at wealth manager Rowan Dartington, said: "We take comfort that the global economy is still growing, and most consumers are employed.  

"Recessions usually come about following a period of overly strong expansion where interest rates have to rise and weak and over-extended businesses go bust, not because it’s time we had one.  

"There is no sign of this at the moment with corporate retrenchment limited and employment markets still tight, as evidenced by the US payroll figures last week."

The first take on US GDP is due on January 30 with forecasters expecting 2019 to deliver 2.4 per cent, down from 3.1 per cent in 2018.

He added: "Most of us are feeling bruised after a dreadful end to 2018. One golden rule applies - investment decisions should always be based on long-term fundamental analysis and never on short-term emotion."

david.thorpe@ft.com