Speaking at the Morningstar Conference, Shah said that given what has happened in the market in the past six to seven weeks he would expect there to be some sort of setback in the region of 8 to 10 per cent, which he said would be another indicator for him to go into areas that he has heavily invested in already
“I am aware that some areas like financials and consumer cyclicals have risen very quickly and at the margin I have been taking some money off the table in the past few weeks.”
Shah said he still sits in the optimistic camp, as indicated by the funds overweights to financials and consumer discretionary, but he believes the recovery will take time.
He said: “I am not in the camp that we’re off to the races and that we are in a V-shaped type of recovery. I do not think things will go up in a straight line and there will be setbacks on the way, which I will look at to further re-orientate my thinking.”
Shah also revealed that 20 per cent of the £1.95bn UK special situations funds’ outperformance in 2008 was thanks to the use of derivatives.
Shah said he makes use of four particular strategies, including the buying and selling of Puts and the use of call overwriting.
He said: “I have also shorted 10 to 15 individual stocks accounting for 5 per cent of my portfolio, however I am struggling to find many opportunities today compared to 12 to 18 months ago.
“I work with our derivatives team on these strategies, but it is important to realise that we use them at the margin. Performance for 2009 on the derivatives side has been slightly positive.”