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Rathbones’ Coombs: why I’m holding so much cash

Rathbones’ Coombs: why I’m holding so much cash

Equities are the only asset class for which Rathbones’ David Coombs can muster enthusiasm, and even then only on a highly selective basis.

AAA-rated Coombs (pictured), who manages the Rathbone Multi-Asset Portfolio funds, paints a very bleak picture of the world, which explains the 14.27% and 30.5% he has in cash and cash equivalents in his Strategic Growth and Total Return Portfolios, respectively.

His pessimism extends especially to the UK and European markets, where he has identified key issues that led him to add to his US positions in the funds, a country he puts at the top of the list for attractive opportunities in the current macro environment.

‘Our number one risk all year has been an inflationary shock in the UK and slowdown after Brexit concerns,’ he said. 

‘Short term, I’m a bit more pessimistic. I’ve gone from adding to the UK after Brexit to now coming out on the other side because markets are so negative post the vote. I thought stocks were too cheap. But going up to the triggering of Article 50 I thought markets were being be too sanguine.

‘We’re going to see a lot of news flow in the second and third quarters. So I’m very nervous about the UK. We are positioned for an inflation surprise on the upside.’

Coombs has seen an increase in flows into the funds, mainly driven by the recent launch of Rathbones’ managed portfolio service, which invests in his funds. This new money has predominantly been used to lift his US exposure.

He recently bought Northern Trust and explained: ‘We were slightly underweight US financials, which was the wrong place to be last year. We are very positive on the US consumer and this bank will do quite well in the current environment in the States.’

Coombs (pictured) has also been adding to consumer-facing stocks, such as Delphi. He said he is excited about several long-term themes, including medical developments, robotics and the Internet of Things. The funds also have an online gaming silo, which invests in companies such as Tencent.

He has recently started exploring the renewable energy and climate change theme as well, and although he admits this has been a long-running trend, for him it has only recently become investable.

‘People can go green and actually save money. That’s why it’ll be exciting from here. I’ve invested in themes, they’re long term and it doesn’t matter who’s in the White House, who’s running France or who’s running the UK,’ he said.

‘Yes, there will be noise and politicians will throw their toys out the pram, but we are moving towards more efficient energy, not just because it’s good to save the atmosphere, but also it makes sense commercially.’

Another stock he recently bought is French-listed food and medical testing company, Eurofins. 

‘It’s a good example of what we’re trying to do, structural plays rather than cyclical,’ he said.

Although Eurofins is a European company, the Strategic Growth fund only has 7.39% allocated to continental equities.

‘What people are missing in Europe is that markets aren’t very liquid at the moment. We don’t like European equity markets, we don’t like the euro.

‘For the European economy and monetary system to work you need more integration. And since Brexit integration is further away than ever.’

This is on a two- to three-year view, but Coombs said that for Europe to work as both an economy and a currency zone it needs to move closer together in terms of fiscal and social policy.

‘As mainstream politicians move to adopt more populist policies to combat the Trump effect, Europe looks less likely to integrate than ever. Structurally, as a consumer market and economy, I don’t see any reason for optimism on a medium term view,’ he added.

The third key risk he highlights is liquidity, which he argues people are currently ignoring and accepting returns that are too low given the risks.

‘I don’t think they are being rewarded for the liquidity risk they are taking. I think liquidity risk is really high right now and that’s how we’re positioning our portfolios. That’s why we have cash and a massive bias to large and mid caps.’

The Strategic Growth Portfolio fund has returned 15.3% and 25.7% compared with a sector average of 9.4% and 11.6% over one and three years, respectively.  

 

David Coombs' investment trust picks:

Biotech Growth Trust

JP Morgan Japan

Martin Currie Asia Unconstrained

HG Capital Private Equity

Aberdeen Asian Income

BH Macro

TR Property

 

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