Chief investment officer Neil Birrell said while he is generally still keen on equities, it is appropriate to take into consideration the fact that markets are at, or near, all-time highs.
He said: “We are still reasonably positive on equity markets, but as they go up and up we are getting more nervous and we believe the upside is less, and we get a bit worried about the downside.”
Birrell (pictured) has therefore slightly reduced the fund’s equity weighting to 60%, the lower end of its five-year historic 60-66% range. The fund’s neutral range is 64-66%.
He has also bought put options on the S&P 500 to protect the equity position because he believes there is a chance the market will be 5% lower come September, yet there are still attractive buying opportunities at the moment.
Birrell said: “At the time of purchase the strike price was only 5% below the index level, so we are not assuming a big market fall. We simply believe that as markets rise, the risk on the downside increases and we are partially protecting the fund against that.
“Very importantly because the volatility is so low, the put options were cheap and if markets carry on up, we expect to increase the level of protection.
“We have effectively insured a quarter of the equity portfolio.”
Birrell said options have not been added to the firm’s Premier Diversified Income Fund because the equity weighting is lower in that fund, but that is likely to change if markets continue to rise.
The fund has also reduced stock-specific risk by increasing the number of equity holdings in the portfolio from “high teens to high 20s”.
As a result of the changes, cash in the fund has increased to 5%, up from 2% previously.
