Absolute Returns: Artemis' Littlewood bets the ranch on inflation

Artemis Strategic Assets

Star manager William Littlewood’s current exposure can be described as geared toward short-term volatility and long-term inflation. While 88% of assets are in defensive equity – the largest allocation in the fund’s 15 months – short sovereign debt exposure stands at the equivalent of 66%.

‘This sounds like a huge number,’ wrote Littlewood. ‘But because the yields on the bond shorts are so small, especially in Japan which is our largest position, the loss the fund absorbs is quite small when – as in June – yields fall sharply.’

Littlewood said that the strategy was targeting states running high debt to GDP ratios: within a few years, the temptation to inflate it away will be irresistible, he says. Further quantitative easing (QE) will also prove a potent inflationary pressure.

‘The chances of the US reinstating QE must be quite high, and if they did this I would expect other countries to follow. Ultimately I take the view that policy-makers will employ too much QE, that politicians will see this as an easy solution.’

Newton Real Return

At more than a decade old, the £1.7 billion flagship Newton Real Return fund – managed by Citywire AAA-rated Ian Stewart – is recognised as a pioneer of absolute returns.

Equity exposure has fallen by a sharp 10% over recent months as the fund pulled back from the further reaches of its risk exposure to just over 56%. Stock selection has remained consistent over the quarter however, with exposure to more defensive mega-caps in substantial stakes in Vodafone and GlaxoSmithKline.

The fund also has a 2.5% exposure to agriculture, which has largely underperformed expectations over the course of the year, and to the consensus-play Norwegian krone. Cash is also relatively high at just over 16%.