MAM Funds fund manager Simon Callow is exploring currency plays in his CF Midas balanced growth fund after sharing ideas with MAM CF Miton special situations and strategic funds manager Martin Gray.
Gray has been influential in Callow’s thinking about currency during the monthly conference calls between the two brands that fall under the MAM umbrella.
Rather than invest automatically in sterling-denominated funds and share classes, Callow looks at whether exposure to other currencies can add value.
He recently added the Nordea Norwegian bond fund to the portfolio to diversify away from sterling fixed-interest assets because UK interest rates are expected to remain low and the outlook for sterling is poor.
The Nordea fund provides a higher yield than UK fixed-interest assets of similar credit risk and the outlook for the Norwegian Kroner is viewed as positive because Norway’s government has little debt.
Callow also opted for the Singapore dollar hedged share class of the Fidelity global inflation linked bond fund rather than the sterling share class. He says this diversifies currency risk and reduces volatility in the CF Midas fund.
Lowering volatility reflects the more conservative approach Callow has been taking. He has reduced exposure to investment trusts and direct corporate bond holdings due to concerns about liquidity.
In 2008, the fund held investment trusts to access asset classes that were not available through open-ended funds but discounts widened further and liquidity dried up, so it could not get out of these holdings.
The fund faced similar problems with its direct corporate bond holdings.
Callow now prefers to access corporate bonds through open-ended funds from managers who have strong relationships with the investment banks who trade in those markets.
He says “We have an obligation to our clients to have liquidity in the portfolio but we do not want to have to sell our best holdings and leave the fund weakened for remaining investors.”