Speaking at the inaugural FundCalibre investment dinner, Coombs said he expects geographical risks to rise further in 2015 and as a result currently holds 20% cash in his lowest risk portfolios and 10% in his medium risk portfolios.
He explained: “We are expecting volatility to rise in 2015, and in that kind of environment you want to have a higher cash allocation that you can then deploy.”
Speaking at the same event, Marcus Brookes, head of multi-manager at Schroders agreed with Coombs that cautious funds “have never been riskier”.
The main reason for this, Brookes said is that at present, he and his team see no value in bonds whatsoever.
“Bonds could perform further from here but at best we would likely see a 4% gain but there is a high chance of capital loss that could be as much as 20%,” he added.
As a result of this, he added, the traditional protection offered by a diversified portfolio is now less obvious.
Allocations
Both managers are bullish on the US dollar, although expressed misgivings at the high level of consensus on that trade.
Both are also positive on the US equity market, but differ slightly in terms of expectations for further growth.
While Brookes believes that the US recovery is better than many believe, he maintains that the Fed should have raised rates sooner than it has and adds: “The US is a Rolls Royce economy, but at the moment you are paying Rolls Royce prices.”
Instead, he is more bullish on a recovery in the eurozone, where he expects the ECB to announce QE at the end of January.
“Europe is a bit better than people expect,” he said, pointing out that recent headwinds for European markets, such as interest rates, the strength of the euro and oil prices, are likely to change into tailwinds in 2015.
Coombs on the other hand is underweight both the UK and European equity markets on the back of continued political uncertainty and is overweight US equities that are exposed to the US consumer. He said that he is of the view that the recovery in the UK has peaked and is not convinced that QE in Europe would make a significant difference.
