Regarding his long positions, Clunie (pictured) said that he has ‘focused on out of fashion stocks with sound fundamentals and solid dividends’. At the moment these include several oil giants, including BP, Royal Dutch Shell and Austria’s OMV.
‘Oil companies have suffered recently due to over-investment and poor asset returns,’ Clunie explained. ‘BP in particular has indicated its intention to improve discipline around capital allocation.’
Clunie has also backed large cap Japanese equities to benefit from ongoing quantitative easing in the country.
Describing his rationale for shorting companies, Clunie said: ‘As a rule of thumb, in my process short candidates should appear overvalued under most scenarios, but should also show a clear catalyst for a potential market de-rating. This is an area where I do believe my academic research on short selling may give me a potential edge.’
This approach has currently led Clunie to short global businesses that trade on elevated valuations despite their exposure to economic weakness in emerging markets. ‘With overly optimistic growth assumptions, I believed these stocks were vulnerable to corrections and waited for clear catalysts, such as disappointing earnings announcements, before establishing these positions.’
As an example, Clunie cited the inspection and product testing specialist Intertek. ‘I chose to short this highly rated stock after it revealed a loss of earnings momentum that led to downgrades.’
Clunie acknowledged that shorting in general could prove risky in the present environment, though. ‘At the moment, particular care is needed in regards to short positions where the fund attempts to profit from falling stock prices as negative firm-level news is largely being diluted by positive market sentiment.’
Nevertheless, Clunie affirmed that he had ‘plenty of cash with which to exploit any apparent pricing anomalies as and when they arise’.
Clunie also emphasised the difference between his investment style and that of his predecessor, Philip Gibbs. ‘My process is not driven by macroeconomic considerations. I am cognisant of the macroeconomic environment and do use top-down analysis to help mitigate risk, but it is not the main driver of my process. I do not believe I have any particular edge when it comes to predicting macroeconomic trends, which are often heavily influenced by politics, which is not always aligned with shareholder interests.’