Gray (pictured) is holding 43% of the fund in cash – the fund’s highest weighting in almost a decade – and said he was happy to stay at the level until opportunities in the property market opened up.
‘Cash is at its highest level since 2002 but it is giving us a reasonable return and it has helped performance,’ he said.
‘The fund has around 5% in property in the UK and Japan, and I’d like to buy in to prime property in Asia next when it comes off,’ he said.
‘The property market is too overheated in China and Hong Kong at the moment, and it is in a bubble, so there will be better opportunities to buy in.’
Gray’s cash holding is invested in a variety of currencies, which he actively manages.
His biggest cash weighting is the Goldman Sachs yen reserve, which makes up 4.3% of the fund.
‘We’ve mainly held Asian currencies, as well as the dollar, and they have done very well on market weakness because whenever there is panic, the yen, in particular, and the dollar react very positively.’
A large weighting in UK gilts and US treasuries has also helped Gray to become the only manager in the Balanced Managed sector to make a positive return in May. The Special Situations fund returned 2%, while another of Gray’s funds, the Miton Strategic Portfolio, has delivered 1.6%, compared with an average loss of 4.4% across the Balanced Managed sector.
Treasuries and gilts
Gray benefited from the flight to gilts from European government debt, as the sovereign debt crisis in the region came to a head.
‘There were initially fears about the UK’s deficit early in the year, but we were buying gilts on weak days, and we built up a big weighting principally to gilts but also to US treasuries,’ he said.
‘Europe was then hit, and investors sold other European debt and ran to gilts so we have benefited.’
He has 11% of the fund in UK gilts and 6% in US treasuries, which have risen as investors looked for a safe haven by fleeing to dollar assets.
Expecting commodities to fall
Gray, who regained his Citywire AAA-rating in June, said he was avoiding commodities ‘like the plague’ in expectations of a reduction in demand in the next few months.
Rises in the price of commodities such as industrial metals were unsustainable given the outlook for lower global growth over the next few years, he said. ‘The world will slow down more than people are envisaging and demand is going to be weak for hard commodities such as industrial metals.
‘They have been driven up by speculators in metal prices but, with lower growth, there just won’t be demand for them.’
Gray’s exposure to resources stands at 2.7%, all of which is in gold, which has rallied almost 10% in the three months to the end of May.
‘We’ve taken profits recently from our gold position but we expect it to rise from here,’ he said. ‘We may also buy back in on any weakness but not at these levels.’