This investor called the financial crisis - and he is worried again
An investor who delivered a 12.3pc return for investors during the financial crisis despite global stock markets falls has said he is moving into cash again and "cannot help but feel bearish" about shares.
Martin Gray, formerly of fund firm Miton but now running his own business, Coram Asset Management, is concerned that “overvalued” stock markets are ripe for a fall.
Mr Gray’s former fund, Miton Cautious Multi Asset, was one of just five in the UK that managed to produce a positive return in both 2008, when Lehman Brothers collapsed, and then 2011, when the European sovereign debt crisis sent global stock markets tumbling.
Mr Gray said he started selling shares and raising cash a year or so ahead of the Lehman Brothers’ collapse because he felt uneasy about the huge amount of borrowing in the derivatives market.
Now he is tipping certain long-dated government bonds and gold to hold up well in the event of another crisis.
“I want to be positioned to make money for investors when stock markets fall. In my opinion now is the time to protect your investment capital. Money can be made at a later stage.”
Lehman Brothers employees leaving the Canary Wharf building after the bank filed for bankruptcy in 2008 Photo: Getty Images
He is of the opinion that equity prices have been artificially inflated by quantatative easing (QE) and extreme monetary policy, rather than fundamentals.
Valuations, particularly for shares listed here in Britain, are “unjustifiably high” he said because there is an absence of earnings growth.
“Actions from central bankers, all this QE, has completely distorted the market. The UK stock market, when you strip out the businesses that dig holes into the ground, is too expensive," Mr Gray said.
Instead of taking advantage of market dips, such as those seen this week, the fund manager said he will keep 30pc of his Coram Global Defensive fund in cash.
This cash buffer will be utilised when shares become much cheaper, he said.
mr Gray, who invests in a range of assets, but mainly other investment funds, added: “I want to be more positive, but I cannot help but feel bearish. There is no value anywhere, in neither the equity or bond markets.
“I fear that QE has not worked and has instead stoked a deflationary environment. This cannot go on forever and time will tell whether the market loses faith in central bankers.”
According to research by FE Trustnet, just four other funds out of around 2,000 available to UK investors managed to produce a positive return in both 2008 and 2011.
They were Ruffer Total Return, Troy Trojan, L&G Global Health & Pharmaceutical index and Schroder Global Healthcare. The last two funds have been aided by the booming healthcare sector.
Both Ruffer Total Return and Troy Trojan are described as wealth preservation funds. They have large amounts of their money in “safe haven” assets such as gold, inflation-linked bonds and cash, which all offer some protection against stock market shocks.