Boutique founder calls for re-entry into global equities
The founder of boutique Edinburgh Partners, Sandy Nairn, has become the latest highly rated equities investor to back a re-entrance into the asset class, arguing that the risk of sitting on cash "is growing by the day".
Nairn, whose boutique now manages £4bn (€4.3bn) of assets, up from £3bn a year ago on the back of substantial inflows, said that investors should reinvest in the stock market as there was an increasing risk in sitting on cash.
He said: "I have never caught a bus by being late for it. There will come a day when a number of stocks will go up by 50%, as a result of a specific piece of news or an economic statistic: a vicious spiral of negative news will become a positive circle. The risk of holding cash, and missing out on returns, is growing by the day." He declined to call a bottom for the market, but said: "Don't sit on cash. An investor should invest in equities at a rate consistent with their risk profile."
Nairn's stance is a dramatic turnaround from his view 12 months ago, when he said investors should "hunker down" and that cash was attractive.
In his latest newsletter to investors, he said: "We found it impossible to find cheap stocks. The best we could do was find reasonable value in a relatively limited range of companies. Since then a number of things have changed, and that is why our stance has swung round to being much more positive about equities and much more cautious about government bonds and cash."
Nairn founded Edinburgh Partners in 2003, after three years as chief investment officer at Scottish Widows Investment Partnership, where he gained recognition for turning around performance at the asset manager. Previously he was at Franklin Templeton for 10 years, where he was director of global equity research, before moving to Swip. His comments come after veteran investors Anthony Bolton, who managed Fidelity International's flagship UK Special Situations fund for 28 years, and billionaire Warren Buffett, reiterated their bullish attitude to equities last month.
However, investment consulting firm, Watson Wyatt, today urged investors to hold off rebalancing portfolios by buying back into risky assets, such as equities, as they were likely to be volatile for some time and could pull down assets values further.
Paul Trickett, European head of investment consulting at Watson Wyatt, said: “Recent market events have severely challenged pension funds’ strategic asset allocation choices.
"Some rebalanced to prior equity percentages in order to maintain their strategic mix, while others needed to actively reduce equities and increase bonds to address solvency issues. Many more allowed their asset allocation to drift out of equities and into bonds by not trading and simply staying on the sidelines."
Trickett said this had resulted in an historic overweighting to equities having largely disappeared, but not through a measured de-risking process. He said pension schemes now faced difficult choices between looking for de-risking opportunities or re-building risk allocations. Like Buffett, Nairn's $1.2bn (€943m) long-only fund available to retail investors reported negative performance last year. It dropped about 43%, in line with the MSCI All Country World index, according to Edinburgh Partners' own figures.
However, performing in line with the index has not stopped substantial inflows, Nairn said. In late 2007 he closed to new segregated accounts after doubling assets within a year, but after ramping up the company's infrastructure, it reopened again in November, and the company has taken on another substantial institutional investor, according to Nairn.
-- Write to Phil Craig at pcraig@efinancialnews.com
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