It was interesting to read that William Littlewood has recently reduced his gross long equity position from 86% to 84% whilst also increasing its short positions slightly.
I have a substantial amount of my ISA in this fund and it is one that I regard as a core holding due to the UCITS structure and Littlewood's multi asset approach. This is one of the funds that I therefore do not look to reduce my holding in during times when the markets look overbought.
With Longview Economics also pointing to a return of risk aversion as supporting the overbought indicators in the next month or two, there definitely appears more more potential risk and downside that upside potential.
Littlewood says if shares continue to rise from here, he will trim the fund's equity exposure further.
"Why?" says Littlewood. "Because, from such levels, and given the uncertainty of the situation with regards to sovereign debt, shares look vulnerable to a disappointment.
"Secondly, opportunities (and valuations) are of course relative. At the margin, if equities go on up we would simply see better opportunities elsewhere - for example, in bonds."
Littlewood has continued adding to the fund's large-cap holdings, mainly on the grounds of relative valuation.
"Stocks large enough to be in the FTSE 100 and their international equivalents now account for 73% of the equity long portfolio. We like, selectively, US large caps," he says.
The manager belives the European sovereign debt crisis remains the biggest threat to investors.
"Our view, long espoused here, is that this problem will be with us for years to come. Ireland was rescued with a €85bn package. This might keep that country going for a few more years.
"But given the huge levels of debt and the ever deteriorating demographic pressures, Europe will not be able to save itself. Next in line for a bailout will be Portugal, followed by Spain.
"If Ireland with a population of 4.5 million needed €85bn, what will Spain - with a population nine times larger - require?"
He adds: "A Spanish melt-down would dwarf the combined problems of Ireland and Greece. Even if the EU extends its bailout, the point is net income and gross habits are simply unsustainable. Will Spain swallow the necessary medicine? We will see."
Read more: http://www.investmentweek.co.uk/investment-week/news/1937566/littlewood-trims-exposure-vulnerable-equities#ixzz1BQdezbKG
