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Courtiers: gold is no more than a legalised Ponzi scheme

Courtiers: gold is no more than a legalised Ponzi scheme

Courtiers CIO and co-founder Gary Reynolds (pictured) says 2014 has reminded him why he enjoys investing through tough times.

‘We had a blindingly good 2013 but this year it has been tougher. That is what I love about this industry – it destroys hubris,’ Reynolds said.

Citywire A-rated Reynolds, who helped set up the wealth manager more than 30 years ago, said the team had been conservative in its calls, which has proved a drag on performance after a strong 2013.

Courtiers has avoided India, which boasts one of the best performing stock markets in 2013.

The team decided not to back emerging markets after their liquidity crisis last year, as Reynolds felt ‘the risk/reward is not compelling’ in the area.

‘India, we did not call that at all, or get much of the emerging market rally that started this year,’ he said.

‘We did not like it for the right reasons and that is fine. You are getting these things at high volatility and India still has a lot of problems.’

Another drag on performance was the team’s short on gold, which is a -6.4% position in the Balanced Risk fund, as the gold price has risen by 7.5% year to date.

Short-duration

Meanwhile, the team holds a lot of short duration bonds, which meant they missed out on the rally enjoyed by longer-dated bonds this year as weak economic data convinced investors monetary policy was not set to tighten.

‘We are short duration. If you were in 15-year gilts, you made 9% and we did not get any of that,’ he said.

‘Bearing in mind we were not betting on an interest rate rise, perhaps we should have been a little longer on duration, but you are always going to think you could have done something better. You will never get it all right; it has been one of those six-month periods, thankfully we have had some other things that have worked.’

However, Courtiers is sticking with its call and this year it bought into four-year gilts, representing the firm’s first gilt purchase in more than a decade.

‘We don’t want too much duration risk, and it won’t get hammered if interest rates suddenly start rising. We do not think there is a chance of a rise in the near future and we are picking up a 1.25% coupon, which is not bad compared to what you get from an ATM,’ he said.

Today, cash and bonds make up 30.4% of the balanced portfolio, with 73% in equities and 2.9% in infrastructure, plus the gold short of -6.4%. The CIO said that in today’s low growth, low interest rate environment, asset managers have a duty to make cash work harder.

‘We are going to buy more four-year gilts to improve the rate we get on cash and to mop up some liquidity,’ he said.

‘As fund managers we have to make the cash work harder and renegotiate with banks on what they are paying us in the short term.’

Performance

Despite some of these short-term calls, the Courtiers Balanced Risk fund has returned 2.3% over the last year, exactly in line with the IMA Mixed Investment 20-60% shares sector, and with a volatility of 6.9%, lower than the 7.6% recorded by the peer group.

Over three years, the fund has returned 10.9%, beating the 8.5% sector average return. This was with 11.8% volatility, higher than 10.2% average volatility of the index.

Of the calls that have worked well, the best was the portfolio’s emphasis on the S&P 500, which returned 30% in 2013.

‘It’s our favourite market. Being in US stocks seems to be a no-brainer right now,’ the CIO said.

‘The dollar did well last year and the S&P did unbelievably well, and we were very long.’

Looking at other holdings, a long-held position in the £1.1 billion Aberforth Smaller Companies trust has proved fruitful, returning 19.2% over the last 12 months, nearly double the 10.2% rise by the Numis Smaller Companies Index.

‘We have had a position in Aberforth Smaller Companies for a long time. They have a value bias that did not always work well. Then in 2012 and 2013 they had a stellar year and we were rewarded for our loyalty – they stuck to what they did.’

Buy:US large cap

‘This is a difficult time for investors because yields are incredibly low on most assets. But for the long term, it’s difficult to beat US large cap stocks, so we have filled our boots with very low cost S&P 500 exposure.’

Hold:Gilts

‘We hold gilts, preferably in the three to five-year range, where there is less duration risk. Interest rates are not going up either too fast or too soon. A 1.67% yield for four years may not seem great, but it’s a lot better than three-month Libor at 0.56% and deposit rates that are even lower.’ 

Sell: Gold

 ‘We are short the yellow metal. That short view hasn’t made us money so far in 2014 – although it did in 2013 – but we are not changing our stance. We still think gold is the biggest bubble of them all and no more than a legalised Ponzi scheme.’

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