Why bet on the market? – asks David Griffiths at Kames Capital
The trend is not always your friend, says
David Griffiths, UK Equities investment manager at Kames Capital.
As investors we find ourselves in a new environment where it seems there is as much chance that our investments decline as rise. A good case can be made for long-term investment in equities – valuations are cheap and balance sheets are strong. But the legacy of the ‘credit crisis’ is one of high leverage (for individuals and sovereigns), low real growth and political interference. This is a dangerous combination which will very likely make for volatile asset markets. Political intervention in particular can cause unpredictable moves and sharp reversals in asset prices. The trend is not always your friend.
Of course economies and investment markets go on. The themes which drove markets in the last 30 years have faltered but new themes and trends will take their place. There is an opportunity to make money even if market levels do not consistently rise. That is the ethos of the Kames UK Equity Absolute Return Fund. The Fund, though relatively new, has successfully weathered rising and falling markets and we have resisted what is the great temptation for any fund manager: to bet on the level of the market.
The framework of Themes, Best Ideas and Pair Trades allows us to express the investment convictions – both long and short – of the Kames Capital UK equities team. A balance of long and short positions in individual equities alongside a futures hedge to eliminate any residual market exposure enables the Fund to capture the alpha-generation of the team while maintaining a beta of near-zero, and with little correlation to the UK equity market. The diversification of the Fund and the lack of correlation between the various ideas within it have kept volatility low.
Absolute return, which is genuinely market-neutral, provides helpful diversification for investors who hold portfolios of equities and corporate bonds. In a highly uncertain investment climate, we believe our approach should produce consistent results with low volatility. Importantly for our investors, we have demonstrated this capability with little correlation to equity markets. After all, in a world of increasing correlations and unpredictable reversals … why bet on the market?
David Griffiths is a UK Equities investment manager at Kames Capital.