“What we are looking at is how we can become more defensive because there are troubles brewing,” said chief investment officer Jim Wood-Smith.
“Our general roadmap is we are in the final phase of the post-financial crisis bull market and final phases of bull markets can be good – but the better the end, the worse the after effects are,” he warned, adding they had reduced their weighting towards equities by around 5% across portfolios and were still worried about bonds.
Wood-Smith confirmed the team was favouring absolute return funds and structured products while rising inflation expectations had also prompted a higher weighting toward infrastructure and commercial property.
“If we are in a multi-year inflation upswing, which is a real risk, then bond yields are too low and equities are too high. It’s as a direct result of the QE era,” he said.
While Hawsmoor IM has not reduced its overall weighting to bonds, Wood-Smith explained it was opting for strategic and floating rate strategies.
He said the eventual drop in markets could “at worst” be 10%, but if markets continue to climb and end up 10% higher, the final fall could be as much as 20%.
Wood-Smith said the only reason to buy equities right now would be if they were showing cheap valuations, or if “you think they are going to go up”.
Justifying his cautious view, he added: “[Equities] are not cheap and if the US leads the world and bond yields in the States are now higher than equities then there’s no compulsion to buy equities”.
