Doyen in­vestor pre­dicts stocks ‘earth­quake’ within months

The Daily Telegraph - Your Money - - FRONT PAGE -

One of Bri­tain’s top fund man­agers, who cor­rectly pre­dicted the re­cent share sell off, has said that it was only a taster, and warned an “earth­quake” will hit mar­kets “within months”. Jonathan Ruf­fer, who over­sees bil­lions of pounds of savers’ cash and has a per­sonal for­tune of around £400m, was last year re­vealed to be the mys­te­ri­ous buyer of $200m (£141m) worth of in­sur­ance to pro­tect his port­fo­lio from a rise in the volatil­ity of Amer­i­can shares.

When the US stock mar­ket be­gan fall­ing ear­lier this year, these con­tracts started to net Mr Ruf­fer sub­stan­tial gains, can­celling out losses from other in­vest­ments.

In his April quar­terly re­view, Mr Ruf­fer has pre­dicted that the re­cent volatil­ity in share prices is just the be­gin­ning. “We are con­fi­dent that the earth­quake will hap­pen, and more con­fi­dent than we have been that it will hap­pen in months, not years,” he said.

Mr Ruf­fer said that the main dan­ger is a gap be­tween how risky in­vestors think their port­fo­lios are, and how risky they ac­tu­ally are.

He also be­lieves that the shift away from free trade and to­wards pro­tec­tion­ism sig­nalled by Brexit and Don­ald Trump’s elec­tion “is a head­wind for stock mar­kets” and will lead to in­creased in­fla­tion. fla­tion.

He ex­plained that t volatil­ity in shares and nd bonds had, un­til Fe­bru­ary, bru­ary, been get­ting ever lower, and volatil­ity “is how the ma­jor­ity y of the as­set man­age­ment in­dus­try judges risk”.

Due to this, Mr Ruf­fer said that in­vestors “have come to be­lieve the as­sets they own are safer than they ac­tu­ally are”. In his view, a con­ven­tional port­fo­lio, a mix of bonds, shares and al­ter­na­tives such as prop­erty has be­come more dan­ger­ous.

For shares, he said that “fi­nan­cial engi­neer­ing” has in­creased the amount com­pa­nies are bor­row­ing.

Cor­po­rate bonds held in port­fo­lios have in­creased “du­ra­tion”, mean­ing they are more sen­si­tive to in­ter­est rate rises, and in­vestors are no longer re­warded with suit­able re­turns from as­sets such as prop­erty to off­set how dif­fi­cult they are to sell.

“Volatil­ity is not a guide to the risk of per­ma­nent cap­i­tal loss; judged by risk of per­ma­nent cap­i­tal lost, con­ven­tional port­fo­lios are much riskier than they are mea­sured to be,” he said.

De­spite re­cent move­ments, the UK mar­ket is still calm ver­sus its his­tory, while the US mar­ket has re­turned to a level of volatil­ity close to its his­tor­i­cal av­er­age. This year so far, the FTSE 100 has ex­pe­ri­enced daily move­ments of more than 1pc on 14 oc­ca­sions. But over the past 20 years, it has seen an an­nual av­er­age of 93 such move­ments. If Mr Ruf­fer is right, there is a va­ri­ety of ways in which in­vestors can pro­tect them­selves.

Mr Mould sug­gested that in­vestors who pick their own stocks should fo­cus on firms with strong bal­ance sheets (mean­ing min­i­mal debt), strong cash flow, and con­sis­tent earn­ings growth, “pro­vid­ing the shares trade on a rea­son­able val­u­a­tion”.

Firms with weak bal­ance sheets “should be trimmed”.

He also sug­gested that in­vestors could in­crease the amount of cash they hold, buy pre­cious met­als such as gold, and in­vest in “short du­ra­tion” bonds that are not as sen­si­tive to in­ter­est rate rises.

Mr Ruf­fer said that in­fla­tion­linked bonds are one of the key as­sets he is in­vest­ing in to pro­tect his in­vestors. For ex­po­sure to short du­ra­tion bonds Mr Mould rec­om­mended the iShares UK Gilts 0-5 years ex­change traded fund. It tracks an in­dex of UK gov­ern­ment bonds with a short time to ma­tu­rity. It charges 0.2pc an­nu­ally.

He also rec­om­mended the Artemis Strate­gic Bond (Quar­terly) In­come fund, which charges 0.57pc an­nu­ally.

“This in­vests across a wide range of bonds, in­clud­ing gov­ern­ment and cor­po­rate, and the man­agers change how they in­vest de­pend­ing on their view of the eco­nomic cy­cle. It in­vests both in the UK and over­seas, and yields 3.9pc,” he said.

For ex­po­sure to in­fla­tion-linked bonds, he sug­gested the Van­guard UK In­fla­tion-Linked Gilt In­dex fund. It tracks an in­dex of UK gov­ern­ment in­dex-linked bonds, and charges 0.15pc an­nu­ally.

Jonathan Ruf­fer be­lieves that in­vestors think their as­sets are safer than they really are, re­ports James Con­ning­ton, who gleans tips for pro­tec­tion ‘Con­ven­tional port­fo­lios are much riskier than n they used to be’

The S&P 500 in­dex of US shares has had 27 daily move­ments of more than 1pc in 2018, com­pared with an av­er­age of 75 per year over the past 20 years.

Russ Mould, of in­vest­ment shop AJ Bell, which com­piled the data, said: “The FTSE 100 and S&P 500 are still be­hav­ing rel­a­tively calmly com­pared with the past 20 years. Sim­i­lar quiet pe­ri­ods in the past were fol­lowed by a real spike in volatil­ity. We haven’t seen any­thing yet.”

Newspapers in English

Newspapers from UK

© PressReader. All rights reserved.