Insynergy with stars

5 November 2009

Mark Dampier’s Fund Focus

One theme I return to time and time again in my column is the quality of fund managers. There are thousands of funds available to investors but many are average and simply make up the numbers.

I have little interest in football but this analogy works quite well. There are many football players and clubs but very few players of star quality that regularly make a difference to their team’s performance. The clubs that can attract these top players tend to win the silverware year after year.

Similarly when investing, I want to fill my portfolio with star quality names to stand the best chance of making money. One such manager is Crispin Odey who runs the Insynergy Odey fund. Insynergy was founded a year ago with the aim of sourcing proven managers from outside the traditional retail market and making them available to the general public. Mr Odey’s reputation for running successful hedge funds was well known in the industry but until then it was difficult for private investors to access to his expertise.

Insynergy Odey is classified as a global growth fund. However, not all global growth funds are built in the same way and you need to look under the bonnet to discover this one’s true nature. For example, it is unusual to see 34 per cent in the UK and 21 per cent in Germany. There is also a large cash position of 11 per cent, which at first seems at odds with Mr Odey’s current bullish views. However, he often uses cash as a balance against some of his more aggressive positions and it allows him to quickly react to any short-term opportunities that arise.
In keeping with his hedge fund background, Mr Odey runs the fund with an absolute return philosophy, meaning that he wants to make money for his investors but he is also conscious not to lose it.

To achieve this, he is able to hold substantial quantities of cash if his view of the market becomes more cautious. He takes no notice of any benchmark or index and he blends his overall views of the economic world with a stock selection process based on company fundamentals.

Most important, Crispin Odey has a knack of being ahead of the curve, which has been amply demonstrated by events of the last couple of years. He shorted banks in his hedge fund way before their problems became widely accepted during the credit crunch. One client told me that shorting was “an abomination” but I believe it serves a purpose as well as being a perfectly valid investment strategy. The shorting of banks could be said to have been an early warning system highlighting that all was not well with the financial system. Never afraid to change his views or back his judgement, Mr Odey was subsequently one of the very first managers that picked up Barclays’ shares close to the bottom and it remains his biggest holding in the fund today.

What are Mr Odey’s views at the moment? He believes equities are very cheap in relation to bonds and that we are in the middle of a substantial rally in the equity market. Furthermore, he is convinced that the rally will continue while it is effectively supported by government policy in the UK and overseas.

The enormous injection of money (equivalent, in his view, to 19 per cent of GDP) and the slashing of interest rates on cash have forced money into other assets. It is tempting to be cautious, given the extent of the rally, but his advice is that selling now would be a mistake and investors should continue to hold their nerve until markets reach an inflexion point.

He makes a particularly interesting point that managing money in bull markets is as difficult, if not harder, than in bear markets, simply because commentators are constantly testing your convictions with bearish views.

In conclusion, Mr Odey’s advice is to hang on in there for the time being. When to sell is a more difficult decision but if I was you I would buy the fund and leave this to Mr Odey. The price of the fund has retreated with the recent market falls, so now looks like a good entry point.

Mark Dampier is head of research at Hargreaves Lansdown

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