GMO’s Montier: we haven’t been this risk-averse since 2008

Value investment specialist James Montier of US asset manager GMO has reduced risk to levels not seen in his fund since 2008.

Montier, who previously voiced concerns to Citywire Global about the difficulties facing asset allocators, said market challenges had intensified.

‘This is definitely the most difficult time to be an asset allocator. It’s very hard to find value,’ Montier told Citywire at the Value Intelligence Conference in Munich, an event hosted by Value Intelligence Advisors (VIA).

The fund manager recently cut his equity exposure to US ‘quality’ names and, as such, has upped cash in his Global Real Return fund. He currently holds 20% in liquid assets, i.e. cash and derivatives, while a further 30% is invested in fixed income.

‘2007 and 2008 we had about 80% of the fund in non-risky assets. This has been the first time since that we have had over 50% in very liquid assets,’ he said.

His recent cut in US equities included exiting stocks such as Proctor & Gamble and Microsoft, which he sold on valuation grounds.

‘We still see these names as a relatively good option for equity investors but as we are value investors, we decided to cut them back a bit as they were getting expensive and so we’d rather hold cash.’

One area where Montier thinks there is still opportunity to select find value is in the emerging market space. Here he has added to names such as Russian oil and gas major Lukoil and Korean telecoms group Samsung.

‘Hellish’ situation

Montier said he is currently breaking up his market view into three different ‘hellish’ situations.

Firstly, there is a kind of ‘stable’ hell, for Montier this is the worst and least likely situation, where rates stay low over a long period and volatility and as such entry opportunities are minimal.

Then he describes something near to purgatory, which, Montier said, is the most helpful environment for investors. This is where he sees the market still moving between a low interest rate and a rising interest rate scenario.

The final of the three scenarios is an ‘unstable’ hell, where the market goes in one direction but keeps getting back off of course.

‘I can’t tell you exactly how it is going to work. We may see US rates rise in the autumn but I wouldn’t take it for a given.’

‘Investors are constantly asking me how long I’m going to keep the cash position and what is going to be the ultimate trigger for reducing. I can’t say that, it does worry me if we are in this stable hell environment but at the moment, I think it’s best to stand a bit and hold onto some dry powder.’