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    What Terry Smith is saying

What Investment - The funds to own for protection from a market crash by investor of £6.7 billion

John Chatfeild Roberts, who runs the £6.7 billion Merlin multi-asset funds, has revealed the investments he is making for protection in the event of a market correction.
He opined that the ‘current bull market is long in the tooth. It is the least loved bull market in history. This is because the policies of quantitative easing and lower interest rates have forced investors into risk assets. Low rates mean they have been forced to buy assets they would not normally buy as they search for yield.’
Chatfeild Roberts continued, ‘so then you ask yourself, what is the yield they would accept on lower risk assets. Well in prime UK property right now, in central London, investors are prepared to accept a yield of 2 per cent, and maybe a little less, for the security of that capital. Now the US Federal Reserve has started to put interest rates up, the European Central Bank have started to reduce their quantitative easing programme, and the Bank of England have stopped doing QE.’
He takes the view that those policies in Europe and the UK equate to a tightening of monetary policy and so a push up of the rate of income that can be achieved from lower risk assets, making the returns available from cash less attracted.
The Merlin Multi-Asset fund managers have long expressed the view that the bull market in the US is driven by strong share price performance from a tiny number of technology stocks, and they regard this as dangerous.
The funds invest in other funds to generate returns.
Chatfeild Roberts commented. ‘We hate losing money for our clients, so we want to invest in fund managers who can do well in multiple years and in different market conditions. We don’t want to buy funds that do well in certain conditions, and then hope that we are clever enough to sell those funds at the right time and buy others that work in the next set of market conditions.’
The veteran investor then turned his thoughts to funds on which he is keen right now. The Merlin funds are big shareholders in Fundsmith Equity, run by Terry Smith and a very strong performer of late.
He commented, ‘We hate losing money for our clients. But Terry Smith really hates losing money, he hates squared losing money. He has over a hundred million of his own in the fund.  That is the sort of person in whom we like to invest. He is a really remarkable individual who cares a lot about not losing money for his clients.’
The other global fund on which he is keen is M&G Global Dividend, run by Stuart Rhodes. Chatfeild Roberts commented, ‘Stuart invests in companies that are either high quality have exceptional assets or are in a phase of rapid growth.’
He continued, ‘Managers with more of a domestic focus in the UK market have done well of late. We like Mark Barnett who runs the Invesco Perpetual Strategic Income fund.’
The Merlin funds continue to be invested in the Woodford
For exposure to commercial property, he is keen on the Mayfair Capital Commercial Property Trust, which has a yield of 5.7 per cent. He noted that the fund has no debt at the present time, and as an investment trust, has no requirement to hold a slug of its assets in cash, as open-ended property funds must do for liquidity reasons.
The Jupiter Merlin Income portfolio has returned 64 per cent over the past decade.

This article was produced and published by www.WhatInvesstment.co.uk on 23rd May 2017

David Thorpe

What Investment