Pyrford CIO spells out the bear case

Andrew Bascand
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Fund manager Tony Cousins is so concerned about valuations in the equity and bond markets that he has 65 per cent of the money in his global portfolio in cash and short-dated bonds. And he says that if equity markets go up any higher he will increase the allocation to cash.

Cousins is the chief executive and chief investment officer of BMO Pyrford, whose Global Absolute Return Fund was launched in Australia in 2014.

The $930 million fund is a multi-asset, unconstrained strategy with a high active share (which means it does not track a benchmark). Over the three years to the end of July it has produced an average gross return f 5.5 per cent a year and an average bet return of 4.6 per cent a year.

The fund holds a number of Australian stocks, including Brambles (its biggest local equity holding), Woolworths, Woodside Petroleum, Computershare, QBE Insurance, Rio Tinto and Newcrest Mining.

“The only thing that is more overvalued than equities is bonds,” Cousins says.

“We can see the potential for a correction in equities and bonds at the same time. What we are doing is focusing on capital preservation. We are willing to go to an extremely defensive position and that is where we are now.”

He says the long bull market in equities is starting to produce some “frothy signals”, including the sale of a 100-year Argentine government bond in June, the emergence of the FANG “super stocks” (Facebook, Amazon, Netflix and Google) ad the flood of money into passive equity funds.

“There has been a lot of growth in passive strategies. There always is at the end of a long bull market,” he says.

“The big issue here is the amount of money that has been printed, about US$13 trillion, since the GFC. That has chased value away. I have been at Pyrford for 28 years and I have seen a few market tops.

“Today nothing is offering good value. To find yield you have to take risk with credit quality of liquidity.”

Cousins says it is very important to hold liquid assets in this market, so you can react quickly to changing market conditions. He is not holding any corporate debt and his exposure to infrastructure, commodities and property is through listed vehicles.

“That is for liquidity. You can never sell physical real estate when you need to.”

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