Euro crisis: how the experts are positioning their portfolios

Euro crisis: how the experts are positioning their portfolios

Markets have become more volatile in recent weeks, but many fund managers have ruled out any possibility of a full-blown stock market crash.

Published: 3:05PM BST 29 May 2010

However, the eurozone crisis is worsening and many analysts are predicting a double-dip recession and further market falls.

No one can predict what will happen but the best way to avoid boom-and-bust cycles is to make objective investment decisions that ignore fashions. We talked to the leading portfolio managers to see how they were mixing their assets.

JOHN CHATFEILD-ROBERTS, JUPITER
We fear that Greece is merely the canary in the coal mine and there is, sadly, considerable potential for more social unrest in some European countries. We therefore have very limited exposure to European equities right now; but while the West has suffered from over-indebtedness, developing countries such as China and India continue to produce impressive economic growth.

This is why our Jupiter Merlin portfolios have significant exposure to Asia and Latin America, via Findlay Park Latin America and First State Asian Equity Plus. In such an uncertain environment, we believe that we should retain an element of insurance in our portfolios.

All our portfolios have what we deem to be sensible exposure to both gold, through a Physical Gold exchange-traded fund (ETF), and the US dollar through Findlay Park US Smaller Companies and Jupiter North American Income funds.

MARK HARRIS, HENDERSON
Our central expectation is that markets will stabilise temporarily but that recent euro troubles will reassert themselves over the summer. We are taking a cautious approach. We have been at our minimum allowable weightings in European equities, using defensively positioned funds such as the Ignis Argonaut European Alpha Fund and the BlackRock European Dynamic Fund.

We have also been hedging our euro exposure back into US dollars to prevent potential currency losses together with tactically selling Euro Stoxx futures to reduce the underlying market exposures in our portfolios. The currency and market hedging reflects efficient portfolio management but, most importantly, helps to protect our clients' money.

But the volatility of the past few weeks need not be a cause for panic. Pullbacks present potential buying opportunities and the number of companies beating earnings expectations could help to balance concerns about sovereign debts.

Weakness in the euro is beneficial to European exporters and any further setbacks to markets will leave European equities attractively valued. We will look to buy funds with exposure to high earnings revisions, exposure to industrials and minimal weighting to peripheral Europe.

MARCUS BROOKES, CAZENOVE
We have been positioned for further malaise in markets. We felt that the backdrop for markets was deteriorating as valuations were reflecting a benign environment, whereas the weakness earlier in the year showed that there remained some stress in the financial system.


The Cazenove Multi-Manager Diversity fund has a cash position of 20pc and defensively positioned equity funds (Invesco Perpetual Income fund, JO Hambro UK Growth), and we have reduced the exposure to long biased hedge fund strategies in favour of funds where the manager was positioning for equity declines (Jupiter Absolute and the Eclectica Hedge fund).

Additionally, currency concerns relating to the euro saw us have a position in gold and other assets denominated in US dollars, as these typically do well in times of stress.

We are aware that markets have moved strongly, targeting the European equity market and the euro in particular. This will present an opportunity to buy cheap assets once the fear causes irrational selling, but we do not feel we are there yet.

http://www.telegraph.co.uk/finance/personalfinance/investing/7782871/Euro-crisis-how-the-experts-are-positioning-their-portfolios.html