Cornelian chief investment officer Hector Kilpatrick has lamented a shift into gold in the build-up to the US election, a move which he described as “sensible” but relatively unfruitful.
Mr Kilpatrick said the change in his risk-rated Cornelian SVS Multi-Manager range was made as a hedge to a potential surprise Donald Trump victory – which he believed would in turn weaken the dollar and lead to risk-off markets, with the latter supportive of gold holdings.
However, after the Republican candidate defied polls and swooped to victory, gold fell with most equity markets moving higher.
He said: “We were concerned a Trump victory would result in the dollar weakening, but now the reverse has happened. We thought that topping up the gold position would be sensible. I think it was, but it hasn’t worked as a trade.
“Since we’ve done that, gold has gone down which is one of the stranger aspects of the result of the Trump success in the presidential election.”
The gold exposure was taken from Latin America, which subsequently also suffered as Mr Trump’s anti-trade rhetoric left investors concerned, with the FTSE Latin America index falling 6 per cent in the week after the election date. Mr Kilpatrick chose Latin America as a sacrifice on the belief the position, added at the end of 2015 via the Findlay Park Latin American fund, had borne its fruit.
He went into the region on a value play, assuming the stream of negative news from the region had led to an overreaction. It has performed well year to date, with Mr Kilpatrick seeing it “prudent” to “top slice” the position and take profits, before any potential fallout in the event of a Trump victory.
“It was obvious, in terms of the spectrum between fear and greed at the beginning of the year, investors had really overreacted to the news flow.
“The Findlay Park Latin American fund [holds] domestic growth companies which seemed very good value relative to their peers in other, more developed, markets. That’s why we upped the ante there quite significantly.”
The portfolio is also positioned well for a US infrastructure spending boost, another likely beneficiary of a Trump presidency, with holdings in Balfour Beatty’s contracting arm in the US, Wolseley, and groundworks business Keller.
The manager said the fund was prepared for both the recent government debt sell-off and a shift towards value investing. But it was not banking on a shift of focus to US inflation.
“It’s interesting that investors seem to be embracing the idea of an infrastructure spend to the US economy as a way of trying to stimulate growth there and it might actually be self-reinforcing as the policymakers realise this is an option in the era of funny money.
“If this is indeed what is happening at the moment then that is a good outcome for the global economy and the US in particular.”
The £194m Cornelian Managed Growth fund has returned 20.9 per cent over three years compared with 11.6 per cent for its Retail Prices Index plus 2 per cent benchmark, according to the firm.
