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Why I'm buying as markets tumble, but staying 'safe'

Former fund manager Rob Kyprianou placed the bulk of his Sipp and ISA in cash last year, but is now buying back into markets.


by Rob Kyprianou on Jan 22, 2016 at 08:00

Why I'm buying as markets tumble, but staying 'safe'

‘Global stocks are 80% overvalued’, ‘one-fifth of global wealth already gone’, ‘the crash of 2016’ – these and many more headlines scream out almost hourly as global equity markets experience their worst start to a year in living memory. The media is quick to sensationalise bad news and there is no shortage of doomsayers that can be quoted for effect.

It is indeed a bad start to the year, but should we fear an equity market collapse and global recession or is this a buying opportunity? There are many commentators ready to give their view who are worth reading – after 40 years in markets I humbly offer my perspective.

In those 40 years I have witnessed a number of equity market collapses. Two in the 70s alone, both due to massive oil price hike shocks. I still remember where I was as a young bond trader on Black Monday that followed Hurricane Friday in 1987. Ten years later the Asian Financial crash demonstrated the risks of over-indebtedness, while the bursting of the dotcom bubble in 2000 reminded us of man’s capacity to lose touch with reality and speculate on price rises for their own sake. And of course we are still dealing with the financial and economic consequences of the 2007-08 systemic banking collapse.

Roll forward to 2016. Oil prices are collapsing, not spiralling up out of control. Such sharp movements in oil prices have major distributive effects from oil producing economies and companies to oil consuming ones, but I have yet to hear that sharply lower oil prices are a cause of global recession in the way the hikes of the 70s plunged the global economy into a highly inflationary slump.

Stocks not in bubble territory

Similarly I see no evidence that global equity markets were in tech or tulip bubble territory. Yes, in some cases valuations were on the high side, but some markets were already correcting (emerging markets, high yield debt for example), while none of significance were screaming out ‘danger, danger’.

China is often blamed in the media and by a number of the doomsayers – but are there any serious investors who have not heard in the last few years about the slowing Chinese economy and its restructuring from export investment to consumer-led growth?

Finally, financial institutions have spent the last seven years de-risking, rebuilding balance sheets, strengthening capital bases and restoring profitability. They may be victims of a crash if there is one, but they do not have the capacity to cause one as in 2008.

So what are the market troubles about? In the second half of 2015 I raised the cash levels in my self-invested personal pension (Sipp) and individual savings account (ISA) portfolios to over 60%. This is of course a very high level of cash, in particular for a long term investor as I like to think of myself. What was worrying me?

US rate rise poses risks

There are no surprising insights here – yes some markets had had several good years and were looking fully valued, the US and Japan among them. Sentiment towards emerging markets was deteriorating and falling energy and commodity prices were not a constructive backdrop for a number of them, while the China slowdown was negatively hurting sentiment. I remain a bear of the whole euro project, but for me the key risk factor was the impending US Federal Reserve interest rate hike.

But it is only 0.25%, I hear you say. I am a survivor of the 1994 bond market crash – as a bond investor running hedge funds and long-only mandates, I arrogantly wrote off the February 1994 rate rise by the Fed as something well flagged and very modest,  only to be burnt in the following months by the market fallout.

The significance of the pending Federal Reserve action was not that it was a hike or that it was only 0.25%, but that it was the first hike. As such it would signal the end of a cycle. The secular 10-year trend of lower rates and the unprecedented easy money policy in the world’s largest economy were over. This secular trend of never ending liquidity, which in my view was a key stimulus for equity markets, was not only coming to end but would be reversed. Markets, it seemed to me, had not fully discounted this.

I'm buying, but staying 'safe'

So what now? With 60% in cash I must admit it is somewhat easier for me. I do not believe that we are heading for a crash for reasons described above. But the speed of the reversal tells me that we are clearly in a sentiment-driven correction. These are difficult to analyse and it is equally hard to assess how far they may go and where they will stop. However, in such sentiment-driven rallies or declines I recall the words of a wise investment mentor of mine many years ago – remember, she said, when things feel great, they are not that good; but when things look terrible, they are not that bad.

With 60% in cash I am not selling. My next moves will be to buy unless there is new news. You never get the bottoms or tops, and when it is not clear how low sentiment might take markets, the best approach is to buy steadily and cautiously. I dipped my toes in earlier this week – only 2% but you have to start somewhere. I am looking at ‘safe’ markets and sectors first – this week it was the US and UK - to be followed by markets and sectors where sentiment is doing the most damage, for example South East Asia, general emerging markets and eventually even commodities and energy.

I am a long term investor with a relatively high risk tolerance. Those with a lower risk tolerance and shorter time horizons might want to participate in a different way, for example through absolute return funds that look to dampen volatility or multi-strategy funds that manage risk through diversification. Or they might just want to stay out and let sentiment have its head – even though this might mean getting back in at higher levels than today.

Rob Kyprianou is a former chief executive of AXA Framlington Investment Managers. He is chairman of the Polar Capital Global Financials Trust (PCFT ) and a non-executive of Pimco Europe.

20 comments so far. Why not have your say?


Jan 22, 2016 at 08:40

A good article. It's refreshing when an industry professional describes what they are doing with their own personal investments.

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Jan 22, 2016 at 08:50

"you never get the bottoms or the tops" is all you need from this article.I've repeatedly stated buy quality names... companies you know whose products and services you simply couldn't live without.Quality always brings its rewards..Dont try to be a 'clever dicky' will fail

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Lee Whitehead

Jan 22, 2016 at 11:41

My portfolio is a sea of red at the moment, and aside from two picks (oil stocks), I feel comfortable with the overall layout, if you believe the companies are solid with good foundations, let the storm pass and add to if need be at a bargain price

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Anonymous 1 needed this 'off the record'

Jan 22, 2016 at 12:22

wish i/d seen his article re 60% in cash last year!

its all very well keeping invested for the dividend but if you lose 20% thats 5 years dividends at 4%!

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Jan 22, 2016 at 16:03

If investing for the dividend, just sit tight. No doubt in a few years time the markets will have made up all the lost ground of the "2016 crash" and moved inexorably upwards. (Well that's my hope so I can sleep soundly!)

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mark senior

Jan 22, 2016 at 16:49

Hi Rob,

Nice to see you back...... shame you ever went away!

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Jan 22, 2016 at 16:52

I certainly don't remember reading an article saying Rob Kyprianou was 60% in cash last year, or even partly in cash. I always read his pieces, and have just searched on Citywire and the last article written by him seems to be July 2015, and no mention of cash held then. Perhaps Citywire could tell us why not???

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Jan 22, 2016 at 17:01

Good advice - thanks

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J Thomas

Jan 22, 2016 at 17:41

Very good advice, although one of the hardest things for investors is just to let the dividends remain as cash in your share dealing account for six months. I know it takes discipline, yet there is always the call of the 4% dividend and latest bargain and share tip from respected sources.

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Jan 22, 2016 at 17:42

Rob interesting article but like others,this is first time I have read about moving into cash in such a big way. Also- surely you mean 2015 not 2016 reference moving out of equities???

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Daniel Grote - Citywire

Jan 22, 2016 at 18:25

Thanks for pointing that out sloccy123, have fixed that sentence.

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Jan 22, 2016 at 22:38

Hi Rob, thanks for showing your hand, that's quite refreshing.

However, "Long term investor with a relatively high risk tolerance", yet you're 60% in cash ? I think that you ticked the wrong box.

Anyway, be really interesting if you would let us know when you decide to go fully invested.


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Dave Kempton

Jan 22, 2016 at 23:08

I see a comment on here suggesting it is best to stay with quality companies but if only it were that easy. Woolworths, Tesco and how many supposedly rock solid banks have either gone bust or are in real trouble. There is no such thing as a safe stockmarket investment.

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Jan 23, 2016 at 10:15

Anyone who is 60% in cash in an ISA or SIPP must have either a relatively small SPP /ISA or a very high risk tolerance as far as banks are concerned, since the limit of protection for deposits has just reduced to £75,000.

I agree that a collapsing oil price should be a stimulant to consumption in US and UK, but the lower the oil price falls, the greater the risk of a severe economic recession if / when the oil price rises again, even to $60. We are riding a tiger.

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Anonymous 1 needed this 'off the record'

Jan 23, 2016 at 10:30

buy and hold for the dividend in uk blue chips doesnt seem to have worked for the banks,supermarkets,commodities,oil companies,etc etc

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Jan 23, 2016 at 13:22

...Of course..its just that some are 'safer' than others..ask Qpp shar...sufferers. At least Tesco will (always) have a regards Woolworths ..the pick and mix ? oh dear... Banks ''rock solid" Oh dear oh dear .

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Jan 24, 2016 at 10:34

Yes, I vaguely recall (hopefully correctly) that chaos theory (what better to describe the market) suggests that when you get serious oscillations it may be a turning point. As FTSE, say, has been in one of its very frequent (over the years) down trends maybe it will turn up.

Regardless, the old adages remain true, never invest what you can't afford to lose and think long (10 years or so in my experience.

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Stephen B.

Jan 24, 2016 at 11:36

The basic question for me is whether there's real economic damage underlying the share price falls, i.e. whether the long-run valuation for companies has changed. For commodity companies that may well be the case - many may go bust, and even the ones that survive may well be seriously weakened. In a sense that's similar to 2008 where all banks were at risk. The difference is that a collapsing banking sector damaged the entire economy. On the face of it commodity price falls should do the opposite, they give a boost to everyone who's a consumer rather than a producer. The only scenario I can see which could do real damage in a broad way is if Chinese production - not consumption - were to be reduced substantially, but at the moment I don't see anything that would lead to that.

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Jan 24, 2016 at 11:51

The market has further to fall .the fed will have to devalue the dollar .the recent small interest rate hike has started a sell off in overvalued stocks .the fed laughs while it puts interest rates up .what has become more noticeable over the years is that the population throughout the world has become richer the usa in particular low fuel prices in the states has transferred wealth from goverment to the man on the street .the usa goverment takes a standard amount of cash from each gallon of fuel sold from each american state. each state the can charge whatever it wants to this extra cash they charge can vary a great deal from state to state the central core amount that the fed receives in fuel taxes has seem to be giving fuel away to their population .while in britain heavy fuel taxation which at times gotten so high rapid inflation started to bite this started up when labour first came into power several years ago. the blair rise . which sold of half of our gold reserves cheap.

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Jan 26, 2016 at 14:59

Notice how BATS has not dropped a lot with a solid 4% yield.It is a favourite of Personal Assets Trust too.

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