GMO’s Montier Goes To Highest Cash Level Since 2008

Jul 13 2015 | 11:20am ET

GMO’s James Montier has lowered risk in his fund to levels not seen since 2008.

In an interview with Citywire Global during a conference in Munich, the manager of GMO’s Global Real Return Fund noted that market challenges have increased. 

‘This is definitely the most difficult time to be an asset allocator. It’s very hard to find value,’ Montier was quoted as saying.

Accordingly, Montier has reportedly cut equity exposure to U.S. blue chips and upped cash in the fund. The current portfolio reflects his concern, showing 20% in cash and 30% invested in fixed income.

“[In] 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 in the interview.

The move out of U.S. equities including exiting positions in such stalwarts 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,” Montier said.

Montier noted that he still believes value can be found in emerging markets, and he has added to positions in companies such as Lukoil and Samsung.

The money manager views the current situation through the lens of one of three possible scenarios, the article explained. 

Firstly, in what Montier terms “stable” hell, rates and volatility stay low over a long period, keeping entry opportunities minimal. Montier believes this to be worst and least likely outcome.

The second alternative, in which the market still moving between a low interest rate and a rising interest rate scenario, is the most helpful environment for investors. 

The final of the three is Montier’s version of “unstable” hell, where the market goes in one direction but keeps falling off the wagon. “I can’t tell you exactly how it is going to work. We may see U.S. rates rise in the autumn but I wouldn’t take it for a given,” he said.

Montier noted that he can’t say how long his fund will maintain the high cash position, and what the trigger will be for reducing it. “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,” he said. 

Montier recently made waves six months ago, when he warned stocks were extremely expensive due to what he termed a central-bank sponsored bubble, and again in May when he decried monetary policy as the “greatest con ever perpetuated.” 

Originally founded in 1977 by Jeremy Grantham, Richard Mayo and Eyk Van Otterloo as Grantham, Mayo, Van Otterloo & Company, GMO now manages more than $118 billion in client assets across equities, fixed income, real assets, multi-asset and absolute return vehicles. 

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