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Hugh Hendry: the environment is ripe for 'barbell strategies'

Hugh Hendry: the environment is ripe for 'barbell strategies'

Hugh Hendry believes it is now the time for the 'flexible macro manager' to shine. 

Hendry, says that following the EU referendum, there is an  'inherently asymmetric risk investment opportunity'. 

The manager of the Eclectica Absolute Macro fund, which returned 0.3% over the last three years to the end of May versus a sector average of 5.3%, says that previously he viewed another European country's defection from the euro system an improbably low possiblity.

However now, quoting Bob Dylan, the manager said: 'times they are a changing'.

‘Remarkably, or so it seems, the markets allow for some potential outsized gains should probabilities continue to be reset with the fallout from the UK’s departure as we believe they will.

‘For the flexible macro manager, this is our time.’

Hendry admits that he did not see Brexit coming, however following the vote he is turning his attention to what is next. 

With the route to expanding income from immigration into the UK possibly soon to be closed, Hendry says 'prospective economic growth now only has one realistic source: productivity gains'.

He believes the sliding value of sterling could lead to a boost in competitiveness which will help productivity gains.

However, he ultimately thinks productivity and GDP growth will require higher public and private investment.

In the immediate future, Hendry says, it is unlikely we will see the required investment, which is why he feels there is the likelihood of a recession. Although he reveals that the UK will endure it. 

'Uncertainty in the short term is therefore understandable, yet it seems that markets are likely to make peace with this more nuanced reality far sooner than the political pundits.'

He added: 'It is an investment environment ripe for barbell strategies.'

So what happens next?

Hendry suspects in all probability the status quo will remain—with sovereign bond prices continuing to grind higher, equity bond proxies still outperforming the wider stock market.

He also sees German stocks continue to outpace those in non-core European bourses and US equities similarly to outperform the rest of the world.

The reasoning behind this faith in German and US equities, for Hendry, is that both are boosted by having monetary policies that will help to mitigate some of the dangers that, he sees, lurking below the surface of other large economies such as Italy and perhaps more notably China.

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