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Sipp Investor: selling off shares after a good run

Rob Kyprianou reveals why he's reducing his holding in the Aberdeen Emerging Markets fund despite its solid performance over the past four years.

Sipp Investor: selling off shares after a good run

Following a good month for his portfolio, Rob Kyprianou is trimming his position in emerging market equities.

A solid start to the year

February continued the good start to the year for equity markets and for my self-invested pension portfolio (Sipp), which rose in value by 8.5% in the first two months of the year, compared with a 5.5% rise for my benchmark (25% UK gilts, 50% UK equities, 25% European equities).

My winners have been an overweight position in equities (87% compared with 75%), my heavy overweight in emerging equities (37% compared with 0%), and my small positions in Japanese and financial equities.

Also helping my performance compared with the benchmark was my heavy underweight in UK gilts (0% compared with 25%).

The decent five-month rally in equities has been fuelled by a number of factors, including:

  • The massive injection of liquidity by central banks in developed countries, now supplemented by the beginning of monetary easing in many major emerging economies;
  • Growing evidence of a steady, self-sustaining private-sector-led economic recovery in the US;
  • The European Central Bank (ECB)’s LTRO programme which has removed, for the time being, the key event risk to global markets – a banking collapse in Europe;
  • The general underweight position in risk assets built by global institutional and private investors in response to the banking crisis and subsequent recession, leaving large cash piles available for investment once again;
  • The historically extremely low level of cash and bond yields in most developed countries.

All of these factors more or less remain in place today. However, the significant recovery in equity markets would suggest that a review is appropriate. In my case, such a review is made somewhat easier by the fact that I built up my equity stake, mainly in emerging markets, during the setback during summer last year.

Although the positive driving forces for equities are still in place, there are also risks ahead.

Fault lines in the eurozone

The most negative force is the eurozone’s approach to the sovereign debt crisis. Yes, the ECB has bought time with its LTRO, heading off banking disaster, and yes the rescheduling of private-sector-held Greek sovereign debt seems to have been completed.

But neither of these addresses the key fault line: the wrong political and institutional structures for a single currency zone. There remains no central tax, spending or borrowing authority and, in their absence, no mechanism for transfers from rich to poor regions.

Instead, a highly fragmented and fractured political system, where interests are at times in deep conflict, means that the only response to sovereign debt crises is austerity, which offers no hope for growth – the key ingredient to any resolution of heavy sovereign indebtedness.

Unwinding years of borrowing excess

Another challenge is the long-term process of paying back debt that is taking place in the rest of the developed world in response to the private sector borrowing binge.

Even though this is under way, especially in the US, it will take years to unwind, which will limit the pace of overall growth in these countries.

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8 comments so far. Why not have your say?

mark senior

Mar 13, 2012 at 09:31

Hi Rob,

Thanks for the article, very good as usual.

Can i make a request please?

Would it be possible for you to let us have the asset allocation of the portfolio?

Kind regards


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Anonymous 1 needed this 'off the record'

Mar 13, 2012 at 10:37

Thank you for the excellent comment.

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Secret CEO

Mar 13, 2012 at 21:04

Hi Mark

As at the end of Feb my SIPP portfolio was allocated as follows (%):

Equities: UK 23.9; US 13.8; Japan 3.4; Global 5.0; Financial 3.2; Global Emerging 10.9; Asian Emerging 26.3.

Bonds: 0

Cash: 13.6

I only manage securities inside this SIPP portfolio. Outside I also own residential property for my pension which is not included in this SIPP portfolio.

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mark senior

Mar 13, 2012 at 21:42

Thanks Rob,

Very much appreciated.


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masud butt

Mar 13, 2012 at 23:16

Rob, its not long term solution for Equities or EM investments. Every day I hear on Bloomberg & CNBC that lot of cash is waiting on the sideline to get into the markets.

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Munchkin 1

Mar 14, 2012 at 09:47

Rob, Is there a reason you have no bonds at the moment? Such funds as Templeton or Old Mutual have only a small exposure to the eurozone and seem to be doing well. What about corporate bonds?

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Secret CEO

Mar 14, 2012 at 10:11

Hi Munchkin 1

I have written about my views on bonds in recent articles. In a nutshell, the highly rated devleoped govt bond yields (US, UK, Germany etc) are artificially (extremely) low and are discounting long term deflation which I do not buy. The only bonds I held last year were Govt indexed linked bonds which performed very well. But by year end real yields had fallen to around zero, again implying no growth for many years to come, which again I do not buy, so I sold out. High yield sovereigns in Europe (Italy, Greece and Spain etc) do not entice me because of my views that the Eurozone fault lines remain in place. This leaves corporate bonds and these may have some yield spread value over govts. However, they are correlated to equity markets and so while I was overweight equities I did not need to buy into corporate bonds. For more defensive portfolios looking for some yield and generally ok about the prospect for private companies, these may indeed be appropriate. My favourite bond house has been M&G. Old Mutual is also a good bond house I have used in the past. Lastly, becareful what you buy -- bond funds are not the same. Some do not buy high yield (sub investment grade) bonds, some only buy these. Some are 'strategic' - that is they jump about a wide range of strategies in bond markets and you are buying these skills rather than an allocation to corporate bonds (they may in fact at times have no exposure to corporate bonds if that is their view), and therefore you are not sure what you have bought.

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Mar 17, 2012 at 11:39

I've read similar elsewhere often on other boards and have also been reducing my holdings/exposure.. Not least of all last year started similarly before a retrenchment and despite the current sanguine mood of the equity markets, or at least their equanimity, significant risk is still out there, as we were reminded of the other day. The Eurozone crisis is unlikely by any means to have played out. China remains a major dark horse and future global economic growth (essentially the US) is far from certain. The current air of calm in the markets makes me mindful of the sailor expecting the imminent storm.

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