Vertical market movements don’t mean caution should be discarded
Howard Marks co-founded Oaktree Capital in 1995, focusing on high yield bonds, distressed debt and private equity and it currently has over US$100 billion of funds under management. In March 2011, Howard Marks published the book The Most Important Thing: Uncommon Sense for the Thoughtful Investor and it covered his investment strategies and analysis of market opportunity and risk.
Howard Marks released his latest Oaktree memo last week, detailing his thinking on markets with ten “Positives” and ten “Negatives” and concluding “some people are excited about fundamentals, and others are wary of asset prices. Both positions have merit, but as is often the case, the hard part is figuring out which one to weight more heavily……My answer today, as readers know, is that I would favour the defensive or cautious part of the spectrum”.
Some food for thought from Howard included:
- The macro uncertainties, high valuations and risky investor behaviour rule out aggressiveness and render defensiveness more sensible;
- With the S&P 500 roughly quadrupling in the past nine years (a compound annual return of 17 per cent), I’m convinced the easy money has been made;
- Prospective returns are well below normal for virtually every asset class;
- The common thread here is markets that may have been doing too well, and an economy that may be in the process of being over stimulated. Both feel good right now, but each has potential negative consequences; and
- It’s impossible to say the negatives will win the tug-of-war anytime soon, but that doesn’t mean caution shouldn’t be discarded……especially now.
To that end, Montgomery’s domestic products, The Montgomery Fund and the Montgomery [Private] Fund, currently hold around 26 per cent and 30 per cent, respectively, in cash. Montgomery’s global products, the Montgomery Global Fund and, by definition, the recently launched Montgomery Global Equities Fund (ASX: MOGL) currently has 20 per cent in cash, whilst Montaka has a net market exposure of 50 per cent.
If you would like to read the full memo, please click here.
Chief Executive Officer of Montgomery Investment Management, David Buckland has over 30 years of industry experience. David is a deeply knowledgeable and highly experienced financial services executive. Prior to joining Montgomery in 2012, David was CEO and Executive Director of Hunter Hall for 11 years, as well as a Director at JP Morgan in Sydney and London for eight years.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
