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Henderson duo build up FTSE downside protection

Henderson’s multi-manager duo Mark Harris and Craig Heron have bolstered downside protection in their portfolios as they believe the FTSE 100 will fall to 4,800 in the next couple of months.

Harris says there is still a lot of macro concern. The pair have boosted their downside protection after placing a put option covering 5 per cent of their FTSE 100 exposure.

Harris says: “The market is oversold with negative sentiment and the belief that there would be a rally from the July lows has been a little optimistic. The market is continuing to fret on fears of a double dip and that will put continued downward pressure on equity markets.”

The move means around 15 per cent of the multi-manager portfolios are hedged through futures in the FTSE 100, totalling 5 per cent, as well as 5 per cent of European exposure through Eurostoxx futures.

Harris says: “We did this by building up the futures positions as buying puts is not necessarily the cheapest option.”

Harris and Heron placed a put option across their range in April, citing concerns that a correction of 5 to 10 per cent was forthcoming. The option was taken off at the start of June.

Harris says the firm has also added some physical gold exposure to their portfolios to protect on the downside.

Harris’s view differs from the view of Standard Life chief executive Keith Skeoch, who believes the FTSE 100 will hit 6,000 by the end of the year.

Speaking last week as Standard Life revealed its results for the first half of this year, Skeoch said: “The FTSE 100 is not just linked to the state of the UK economy as almost 70 per cent of profits are generated abroad by companies who have good exposure to emerging markets, which will support share prices.”

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