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Cash-rich fund managers look to exploit slump

Fund managers who had built up cash levels as markets rallied are now looking to pick up bargains after the sell-off.

 
Cash-rich fund managers look to exploit slump
 

Fund managers who had built up cash as markets raced higher are now looking to put that money to work after the sudden stock market fall.

Having hit all-time highs in January, global markets have since retreated, culminating in US markets' dramatic fall on Monday, accelerating a global sell-off.

But as stocks appear to regain their poise, managers who had been banking profits from shares are now looking to increase their exposure to equities.

Royal London Asset Management's Trevor Greetham had sold some share holdings in the group's 'multi-asset' funds last Monday, warning that investor sentiment had become 'frothy', although the funds remained overweight equities.

With global markets having fallen around 5% since then, Greetham is now looking to top up on shares.

'It almost always pays to buy stocks during a panic,' he said. 'We lightened up equity exposure in our funds last week, while remaining overweight,' he said.

'With markets at lower levels, we are looking to add to these positions again as the sell-off progresses.'

He said investors' fears over interest rate rises from the US Federal Reserve were likely to lead to further market jitters, but added these would present buying opportunities.

'We expect bouts of volatility like this to become more common now the Federal Reserve is in play, but expect stocks to recover over the coming weeks and months, making recent market moves look like an overreaction,' he said.

Ben Kumar, investment manager at Seven Investment Management meanwhile cashed in a 'put option' on the EuroStoxx 50 in yesterday's market volatility, having only bought it on Thursday.

A put option allows the buyer to sell an asset at a predetermined price, and is used by investors to profit from it falling. 

Kumar's put option had a strike price of 3,450, and with yesterday's market fall having dragged the index to a low of 3,367, he was able to exercise it.

Having paid £6.6 million for the put in the £797 million 7IM Balanced fund, he was able to cash in for £10.6 million, a 60% return.

'This option was due to expire in December of this year, giving a sense of our expected time horizon,' he said.

'However the violent moves on Monday and Tuesday quickly saw the option become "in the money", so yesterday we exited the position.

'Whilst we are not in the habit of switching in and out of positions in the space of a few days, in this case we felt that taking profits was the sensible approach.'

Kumar said he was now looking to put some of the cash to work in the 'unsettled' markets.

Steven Andrew, multi-asset fund manager at M&G, said he was also looking to buy more shares on weakness, arguing the market falls ignored a strong fundamental backdrop.

'Increasing wages should ultimately be a good thing for the US economy and corporate profits,' he said.

'These considerations... suggest that there may be some non-fundamental drivers of this price action and our predisposition would be to add equity exposure.'

Emiel van den Heiligenberg, head of asset allocation at Legal & General Investment Management, agreed.

'For now, we are inclined to lean against the recent sell-off and would consider increasing our exposure to duration and equities should the market weaken much further,' he said.

4 comments so far. Why not have your say?

joseph o neill

Feb 08, 2018 at 11:57

Why don't we ever get told about their losers & mistakes!!

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Daniel Grote - Citywire

Feb 08, 2018 at 12:35

We try to!

http://citywire.co.uk/money/the-fund-managers-hit-by-carillions-collapse/a1083709

http://citywire.co.uk/money/fidelity-backs-carpetright-recovery-after-crash/a1085770

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joseph o neill

Feb 08, 2018 at 20:58

DG.,

not referring to citywire for publishing article, more to institutions /fund managers who feed you the information!!

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S_M

Feb 09, 2018 at 12:54

If I was a financial journalist, I would be reluctant to offer commentaries from Fund Managers who fail their customers big time. Making a correct "punt" doesn't display any skill to me.

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