Ingenious’ Guy Bowles: Greece and China are ‘irrelevant’

The ongoing crisis in Greece and the rollercoaster ride of the Chinese stockmarket are not issues that concern Ingenious Asset Management’s Guy Bowles. He sees them as short-term blips that are not going to impact his holdings in the £46m Global Growth fund he runs.

“While they are extremely interesting, in terms of what’s actually going to happen to the assets we hold we think they are irrelevant,” he says. From an investment point of view, Greece is such a tiny part of the global economy and the world stockmarket it is not going to have an impact, Bowles adds.

For China, there is no denying it is a massive part of the world economy, he says, but the recent drop needs to be seen in the context of the past two years of soaring markets.

“It doubled in six months and came back 40 per cent in three, but it has still doubled in the past year. It’s just a young economy not used to having public markets with unsophisticated investors chasing a market up and coming down again,” he says.

However, Bowles does not have any China exposure, deeming that the market valuations do not bear any relation to the real underlying companies.

What is a big factor for Bowles is the looming rate rise by Janet Yellen and the Federal Reserve in the US, which he jokes has been predicted to come next quarter every quarter for the past five years. “They are not going to raise rates unless inflation goes up and we’ve not seen inflation rise,” he says.

Once a rate rise does come Bowles is prepared to increase equity exposure, although not immediately. He thinks a rate rise may lead to an equity market drop, which will present a buying opportunity.

The Global Growth fund is index agnostic and aims for a return of cash and inflation, plus 3 per cent over a rolling five-year period, which Bowles says it is currently achieving. Rather than having limits on asset class allocation Bowles aims to target a risk of the fund, measured by losses. For Global Growth, which is one of a range of five risk-targeted funds, the limit is a 20 per cent drawdown over a 12-month period.

While the maximum Bowles is likely to allow in equities is 80 per cent, the equity allocation is currently below that at about 70 per cent, following an increase in 2012 and early 2013 when Bowles moved out of bonds and bumped the equity allocation from 40 per cent to 70 per cent.

Moving out of bonds left Bowles with a gap and minimal options of where to invest that excess allocation – a problem many of his peers have also experienced. While he waits for a rate rise Bowles has dabbled in other areas to compensate for this low bond allocation. This included unsuccessful forays into gold and hard currency, both of which initially rose and them slumped. “I’d have been better off keeping it in cash,” he admits.

He is now sitting it out in absolute return exposure, specifically in the BNY Mellon Absolute Return Equity fund, which had zero allocation a year ago and now represents 9.8 per cent of the fund.

Bowles has also taken new positions in the Troy Trojan fund and the GMO Global Return fund,
which are new allocations and give him similar exposure. They have 3.8 per cent and 3.9 per cent allocated respectively.

Bowles is hunting for more absolute return managers, wanting to add between 5 and 10 per cent to each. One hurdle is a specific set of criteria; focused on low volatility, uncorrelation to existing holdings, equities and the bond markets; good control on the downside and daily
liquidity and transparency. He admits this hurdle is not easy to surmount.