Odey Opus - storm clouds are gathering over global economies
Dominic Rowles | Thu 24 January 2019
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- Crispin Odey is cautious in his outlook for global economies
- He’s invested the fund defensively and expects it to do better than others if global economies falter
- We like the manager’s unique approach but his fund has a high ongoing fund charge
Our view
A fund manager can’t perform better than their peers or benchmark by investing the same way. They've got to do something different to stand out from the crowd. Crispin Odey is a manager who does just that.
He tends to focus on companies that’ve been overlooked by other investors. Perhaps they’ve been mismanaged, or missed a profit target. Importantly, he must feel they’ve got the potential to change for the better, which could lead to a rising share price. He combines his view on individual companies with his views on the broader global economy and buys shares in companies expected to thrive.
Odey invests in companies of all sizes, from global juggernauts to higher-risk smaller businesses. But if he doesn’t think stock markets have much growth potential, he invests part of the LF Odey Opus Fund in other assets like bonds, cash or commodities. This should help shelter investors’ money if markets fall. He’s also got the flexibility to invest in derivatives which, if used, adds risk.
This fund offers something different to others and it’s managed by an experienced, well-regarded fund manager. But it has a high ongoing fund charge. That’s why it’s not currently on the Wealth 50 list of our favourite funds in the major sectors.
What’s the manager’s view of the world?
For a while now, Crispin Odey’s thought storm clouds are gathering over the major global economies and a downturn is on the cards.
The fund’s invested defensively, in a way that could see it hold up better when markets are weak. But since the financial crisis, quantitative easing has seen billions of pounds pumped into the global financial system and helped markets perform well. Now most of the world’s major economies are beginning to withdraw or reduce it. Odey thinks the consequences could be severe.
He’s also concerned that low interest rates have allowed businesses to borrow money at cheap rates. This money can be used to help businesses grow but it could become expensive to pay back if interest rates rise. Low levels of unemployment and a shortage of labour in countries like the US could cause wages and inflation to rise, and central banks could be forced to increase interest rates faster.
Add to that the fractious global political situation and well-publicised trade disagreement between the US and China and there’s the potential for plenty of volatility in the years ahead.
How‘s the fund performed?
The defensive way the fund’s invested held back performance over the few years leading up to 2018 as global markets continued to perform well.
But last year stock market returns were more subdued. The fund beat the performance of its peers in the IA Flexible Investment sector and performed in line with the broader global stock market. Past performance shouldn’t be seen as a guide to the future though. The fund also benefited from an investment in broadcasting company Sky. Its share price rose sharply when it agreed to a takeover offer from US rival Comcast.
It wasn’t all plain sailing though. Property and lettings company Leo Palace performed poorly after it emerged some of its buildings had construction defects. The manager thinks the company can overcome this issue and added to his investment at a lower share price.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| Dec 13 -
Dec 14 |
Dec 14 -
Dec 15 |
Dec 15 -
Dec 16 |
Dec 16 -
Dec 17 |
Dec 17 -
Dec 18 |
|
| LF Odey Opus | 7.2% | 0.3% | 4.8% | 6.6% | -3.1% |
| FTSE World | 11.3% | 4.3% | 29.6% | 13.3% | -3.1% |
| IA Flexible Investment | 4.9% | 2.1% | 14.5% | 11.7% | -6.9% |
Past performance is not a guide to the future. Source: Lipper IM to 31/12/2018
Where's he found opportunities?
Given his concerns, Crispin Odey’s invested in companies that aren’t sensitive to the health of the economy they’re in.
Energy company Uniper is held in the portfolio, for instance. Utility companies are thought to be less sensitive to the economy because people need to light and heat their homes whatever the economic weather.
Part of the fund is invested in companies that rely on the gold price. When uncertainty is high and stock markets perform poorly, many investors turn to gold for security. That means the yellow metal’s price behaves differently to share prices. Randgold Resources, the fund’s biggest gold company investment, recently merged with competitor Barrick Gold which benefited the fund’s performance.
The manager also looks further afield in countries such as Argentina. Its economy has struggled in recent years because of steep interest rates and a weak currency. But it could be on the mend. The government’s accepted a bailout from the International Monetary Fund (IMF) and, in exchange, has agreed to cut spending and balance its books.
Odey’s recently invested in Argentinian bank Banco Macro. He thinks it’s got plenty of growth potential which has been overlooked by other investors because of what’s happening in the broader economy.
12% of the fund is held in cash. This could help shelter the fund from stock market volatility and means the manager can pounce on new opportunities as and when they become available.