Odey Opus - the calm before the storm?

Kate Marshall | Wed 10 January 2018

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• Crispin Odey maintains his cautious view of global economies
• Fund remains positioned to reflect this view, including investments in physical gold and cash
• It has been through a period of weaker performance, but we maintain our long-term conviction

Our View

Crispin Odey is never afraid to back his convictions. He is renowned for his contrarian investment style and willingness to invest in a way that differs from most other fund managers.

The manager tends to focus on companies that have fallen out-of-favour with other investors, but which he feels have the potential to change for the better and offer good value. He’s also prepared to invest a large part of the fund in other assets, such as cash, bonds or commodities, if he feels global stock markets do not offer enough value. Companies of any size, including higher-risk smaller companies, are held in the fund.

In recent years Crispin Odey has held a cautious view of the world and believes the current economic cycle, as well as stock market growth, is reaching a peak. His Odey Opus Fund has been positioned to reflect this view - while a reasonable portion of the fund is invested in shares, it holds a greater level of cash and gold than its peers. In a world where global stock markets have continued to grow strongly, this view has proven incorrect and held back the fund’s returns.

Crispin Odey has been early in repositioning this fund based on his wider economic views in the past. However, given time his views have typically come to fruition and investors have been rewarded for their patience. Based on its current positioning, we continue to expect the fund to perform differently to its peers. It is likely to lag during periods of strong stock market performance, but could provide a wider investment portfolio with some shelter during the tough times. The fund could still fall in value, however, so you could get back less than you invest.

The fund continues to feature on the Wealth 150 list of our favourite funds across the major sectors.

Past performance is not a guide to the future. Source: Lipper IM to 31/12/2017

Have global stock markets reached a peak?

Crispin Odey’s views have largely remained the same over the past couple of years. Against a backdrop of low growth and high levels of debt, he has maintained a cautious outlook for global economies and stock market growth.

In response to the damage caused by the 2008 financial crisis, governments and central banks across the globe introduced quantitative easing programmes. This involved purchasing huge amounts of bonds, which pushed bond prices higher and yields lower. With both bond yields and interest rates at historically low levels, many investors turned to stock markets in search of greater returns, which also led to rising share prices and pushed some markets up to peak levels.

Some changes are now beginning to happen. Both the UK and US have started to raise interest rates (albeit at a marginal pace) and the US has also started to reverse QE. In Crispin Odey’s view, this could ultimately leave markets in a precarious position and helps to explain his caution, although in recent years this has been the wrong call.

He is also cautious that low interest rates have allowed businesses to borrow money at cheap rates – while this money can be used to help businesses grow, it could become expensive to pay back as interest rates rise. Low levels of unemployment and a shortage of labour in countries such as the US could also put pressure on wages and cause inflation to rise – this may see a greater willingness for central banks to increase interest rates faster.

How has Crispin Odey invested the fund?

The manager has maintained the overall conservativeness of the portfolio. This includes an 18% weighting in cash, although this has been reduced from around 40% at the start of 2017 as the manager has found some pockets of value in the market and invested some of this cash.

Exposure to UK companies has increased to around one third of the fund. This is a result of the manager being able to fund companies he can purchase at attractive share prices, which may also be undergoing a turnaround for the better, rather than due to any broader view of the UK economy.

Current high-conviction investments here include media company Sky. The manager believes the company offers a good combination of high levels of viewership and a strong customer proposition through the services it offers. The company uses market-leading technology and on-demand services that rival competitors, while it also generates good levels of cash.

The manager has also added a number of overseas investments to the fund that he believes will benefit from using technology to their advantage, including SLC Agricola, a Brazilian cotton farm. In his view, the company is a world leader in the adoption of mechanical and biological technology and is highly efficient due to its size and scale. He also believes the company is set to see an improvement in earnings after surviving a period of drought in Brazil.

The manager has also maintained a 7% position in physical gold, which could provide the portfolio with some resilience during more turbulent stock market conditions.

Please note the annual charge is taken from capital rather income, which increases the potential for the capital value to be eroded. The manager can also use derivatives to enhance returns, which can increase risk.

Find out more about this fund including how to invest

Please read the key features/ key investor information document in addition to the information above.