After trimming the top off most of his equity fund holdings following a good run at the end of last year, cash now stands at around 27% of the portfolio, with 2% of that total contributed by the underlying funds he holds.
Brookes said he was not bearish on equity markets but felt values had run away slightly and could easily fall back by 10%. "We are conscious of not staying at the party too long," he added.
Trying to predict the timing of this correction is futile, so he thinks it prudent to take some profits and keep freed-up money in cash where it will not make any returns but is also unlikely to lose anything over the short-term.
He is also not confident bond yields can fall further and so does not want to increase fixed income exposure.
Cash in the fund is held in US dollars, which Brookes considers cheap at current levels relative to most currencies.
Star performers
In December Brookes and his co-manager on the Diversity Fund, Robin McDonald, benefited strongly from their position in the US dollar version of the GLG Japan Core Alpha Fund.
The GLG fund returned almost 20% in the fourth quarter as it was not affected by the weakening yen. A sustained weaker yen should also give Japanese equities a further boost, Brookes predicted, as it would be “fantastically bullish” for exporters in particular.
Sanjeev Shah’s Fidelity Special Situations Fund is another high conviction position for the Diversity Fund, which had 8.09% of its holdings invested in it (out of a total of 28.7% in equity funds) as at the end of December.
At the start of last year Brookes sold out of Neil Woodford’s Invesco Perpetual Income Fund to buy Shah’s fund which following a period of poor performance made top quartile returns in 2012.
Brookes said Shah had got is call on banks spot on and had proven to be a great allocation because of that.
The Diversity Fund returned 9.3% last year compared with a sector average of 8.2%, which placed it in the second quartile.
