Artemis Strategic Assets fund manager William Littlewood has lowered the net equity position of his £830m fund to 54 per cent.
Littlewood held a long equity position of 72 per cent at the end of May but has continued to cut equity exposure as markets have continued to rise.
The fund manager says he still believes that equities are cheap in relation to bonds and cash but only because government bonds are dramatically overvalued.
He says: “If government bonds in the West yielded say 4 per cent – and I think one day they may yield a lot more than 4 per cent – then shares would probably look slightly cheap, but no more than that.
Littlewood says there are three things that worry him about shares in this current climate.
He says: “Firstly, if bond yields rise sharply then there would be some many dangerous repercussions that shares would almost inevitably fall. Secondly, profits as a percentage of GDP are at all time highs. This ratio is a mean reverting, cyclical metric, so I would anticipate that profits at some stage will fall, thereby increasing price/earnings ratios, making shares look less appealing.”
“Thirdly, economies across the world are struggling. Growth in the so-called BRICs is falling sharply, and the west will continue to struggle, burdened by over-indebted governments and deleveraging private sectors.”
Littlewood also says he has continued concerns over the use of quantitative easing by central bankers across the globe.
Last month, the Federal Reserve launched a third round of QE through purchases of mortgage-backed securities. The injection has no limit and will continue until the labour market improves.
Littlewood says he would prefer to see QE used to stave off a real emergency rather than attempting to keep economies in a permanent state of growth.
He says: “I would argue that QE has many bad side effects. It has pushed up the price of commodities, notably oil. It has probably caused income and wealth inequality to widen (which I believe will hurt stock markets one day). It has enabled ‘zombie companies’ to continue existing, making it harder for successful companies to be profitable.
“Most important of all, its use, allied with zero interest rates, has and will misallocate resources. This is most obviously seen in the government bond market, where western governments are not given a price incentive to improve the woeful state of their finances. When this bubble bursts, the consequences will not be limited to the capital markets.”