William Littlewood was the fund manager who gave the phrase "quit while you're ahead" a whole new meaning. Having run Jupiter's income fund for a decade, delivered a cracking 567 per cent return (against 344 per cent for the FTSE All Share) and made quite a name for himself, he walked away from fund management in 1999 at a relatively tender age.
In 2005, he joined Artemis to run a hedge fund, and last year re-entered the mainstream as manager of the newly-launched Artemis Strategic Assets fund. This multi-asset fund has a number of the characteristics of a hedge fund, as it can short sell stocks and use derivatives. But Mr Littlewood says in many respects, the fund is run in just the same way as his Jupiter funds of the 1990s - with a heavy emphasis on the macro environment.
"I am an economist by training and have always had macro views," says Mr Littlewood. "I had views when I used to work at Jupiter - in the 1990s that income fund was the most macro-driven fund out there."
His investment approach has not changed much since, and Mr Littlewood says that the way he runs the Artemis Strategic Assets Fund is "more macro than micro." Keeping an eye on the broader economic backdrop is particularly relevant to this fund, argues Mr Littlewood, because it does not just invest in equities, but also commodities, currencies and bonds.
The macro-economic situation is important in determining the fund's allocation to the different asset classes. But just what is this economist-turned-fund-manager's macro view? Mr Littlewood has a strong conviction there will be deflation in the near future and poor growth for a number of years. This will be followed by inflation further down the line, as indebted western governments try to inflate their way out of trouble, and current inflation in emerging markets such as India and China feeds through to western economies.
"For this reason I am looking to large defensive companies," says Mr Littlewood. "Shares are cheap relative to bonds - especially the ones of big successful companies. We also don't need to fear equities any more, like we did in 2008, when banks were in a terrible state. We have had the nasty part of the recession and equities almost by default are the place to be.
"Bonds, in contrast, are poor value and yields could be significantly higher in five years, so I will add to my shorts in this area."
Over August, Mr Littlewood increased the short element within the fund's government bond allocation to 78 per cent, from 65 per cent. He's done this using contracts for difference (CFDs) or in the case of government bonds, futures. "I do not use options, although we are not prohibited from using them, because we do not want as much gearing as in a hedge fund - it is not what we are trying to be. We want to make the fund as simple as possible because it is a product for small investors."
The fund in total can go up to 30 per cent short, a level that Mr Littlewood feels is a good trade-off between flexibility and volatility.
| WILLIAM LITTLEWOOD CV |
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William Littlewood has been manager of the Artemis Strategic Assets Fund since its launch in May 2009. Between 2005 and 2008 he ran Artemis Absolute Return Hedge Fund, prior to which he worked at Jupiter Asset Management between 1989 and 1999. Mr Littlewood has a degree in economics from Bristol University. |
Like some hedge funds, Mr Littlewood also looks to preserve wealth. "My objective is to make money on three-year views (beating cash and the FTSE All-Share) but also not to lose money. I have a lot of my own money in the fund and I think the most sensible way to run it is without unnecessary risk. I would rather it grows slowly than be at the top of the table and win all the prizes in the short run."
Be that as may, Mr Littlewood's fund is currently the second-best performer out of 142 funds with a one year track record in the IMA's Active Managed sector, despite his high exposure to BP - currently the fund's largest single holding, at 2.7 per cent of assets. "BP accounted for 1.5 per cent of assets when the spill happened and I had been adding to it," says Mr Littlewood. "I and many other fund managers were wrong in understanding how damaging the oil spill incident would be for BP. However, I don't think BP will go bust and my 2.7 per cent weighting to the company means I am still underweight the FTSE All-Share with regard to BP."
Currencies are another area where Mr Littlewood has strong views. "I spend time talking to the bond team at Artemis for their views on currencies, but all fund managers should have a view at least on the US dollar because of its impacts. I have been doing this for 20 years, and the currency decisions are my views." Within his currency allocation, he is currently 32.7 per cent short of the US dollar.
Another important consideration is whether the economic backdrop is conducive to the growth of equities, and the influence of inflation and deflation on equity prices. This helps determine the sort of equities Mr Littlewood invests in.
He also pays attention to what he describes as "micro" factors in his stock selection. "I meet company managers and see what is happening on the ground," says Mr Littlewood. "This often is useful input for the macro views I am forming. For example, when inflation picks up you see it sooner at company level. I always learn things from meeting companies and managements. Macro and micro perspectives intertwine in forming ideas and portfolio construction."
When buying equities, another consideration, is where a company will be in five to 10 years. "A lot of people underestimate the importance of this," says Mr Littlewood. "I also like companies with large market share - there is usually a reason why they are the market leader. My top-10 holdings are mostly market leaders, and compared to bonds they offer very good yields."
