GAM's insurance policy for volatile markets
Investment markets are at a cross-roads and the issue for investors is deciding which way to go. GAM's Josephine Shaw gives her take on the situation and what she is doing in the Global Gateway Fund.
Thursday, April 1st 2004, 12:34AM
GAM head of portfolio management Josephine Shaw says markets are irrational and they are at a "crossroads".
"Markets have done a very quick upturn," she says and made up much of the losses of the past two years, however it is still unclear where they are heading and how to play the increased volatility.
While she is confident that they will continue to move upwards there are a number of factors that create volatility and uncertainty about the future.
She says the risk/reward profile is difficult to justify and she questions whether the markets can produce the sort of returns they generated last year.
The United States Federal Reserve has been prepared to underwrite the market risk with increased liquidity, but Shaw wonders what will happen when interest rates start to rise. Likewise she questions whether growth is sustainable
"I can see a lot of volatility ahead," Shaw says.
Her approach is best summed up in the GAM Global Gateway fund that is designed to be a balanced fund that represents the house views of GAM.
Shaw says she splits her share allocation into two groups, one being traditional long-only funds and the other being long-short funds.
Because of the uncertain environment she has chosen to increase her long/short allocation at the expense of long-only funds.
She says the long/short equities provide her with good capital preservation in volatile markets and they are a good way to play the rallies.
Her other key decision is to keep a bigger than normal allocation to alternative investments - which she describes as currencies and commodities.
Alternative investments, she says, have historically provided "reliable" returns and are "non-equity correlated". She says they also provide the fund with "excellent downside risk management".
When talking about GAM's hedge funds she said she is "optimistic about trading strategies" at present, particularly arbitrage strategies.
She believes the sector may benefit from a pick up in financial market volatility and event driven strategies may benefit from increased levels of corporate activity.
Currently her portfolio is allocated as such: Alternative investments 36.3%, long/short equities 32%, long equities 24.6%, bonds 7.2%.
Shaw bundles up cash and bonds as one and says that she will draw on this money during the year. "I'll probably dip into the piggy bank," she says and the money will be allocated to "a cocktail of styles."
So how does Shaw see the markets now? "I'm not bullish, but I am optimistic," she says.
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