What your pension fund manager is worried about (and why you should do the opposite) says Chris Bailey

‘Don’t build a glass house if you’re worried about saving money on heating’ – Philip Johnson

You probably formally hear from your pension fund manager once or twice a year. Every month though they collectively tell the world what they are excited or worried about in an industry survey. Fantastic!

Now the reason why this is more exciting than it sounds is that the key to successful investing is to combine real insight with a sense of timing – in short to be correctly positioned in the right investments just before the weight of global money follows you and drives up the price of your preferred equity or asset class.

So…in using the information from these surveys the best strategy is always to buy what the totality of pension fund managers dislike and to sell what they currently like.

Of course this sounds a crazy strategy but bear with me. Before I chat through what the pension fund managers’ survey released earlier this week said I am going to share with you some thoughts from a study just released by the Federal Reserve Bank of St Louis titled ‘Do Institutional Investors Chase Returns?’

Of course you can guess the conclusion already: they do. As the St Louis paper observed:

‘…expectations of future stock market returns are positively correlated with previous stock market performance, but do not match up well with actual future returns… their returns-chasing behaviour is still likely to reduce their overall returns because they are more likely to buy high and sell low’

Experience tells me that buying high and selling lower is not a sustainable strategy…and this is at the heart of why you should focus on buying what is heavily disliked and sell what is heavily liked already. The stock market really is a wonderful discounting mechanism.

So onto the survey released earlier in the week where the headlines included that pension fund managers were more optimistic about global growth prospects…but were holding near record amount of cash.

Meanwhile the biggest fear factor remained a European disintegration followed by a protectionist trade war whilst looking at individual asset classes, banks, the US dollar and American stocks generally were loved but consumer staple shares as well as the euro and the British Pound were disliked.

You do not need to be an investment expert to observe that all of this is a bit…anti-Europe. I discussed in last week’s column the reason why populism – and by extension Europe in particular – was no disaster. Now with some of the current views and positioning above everything European tinged remains more of an opportunity and not a threat. By contrast the average American asset is a bit less exciting.

Now note this is not a risk thing. I am sure many of you noted the slightly schizophrenic combination of more enthusiasm about growth…whilst there is still the continued maintenance of well above average cash balances.

Maybe this reflects the still low bond yields on offer at the moment. All I do know this week is that I would much rather be looking for opportunities to put cash to work than rely on upcoming future growth per se.

Take the comments a couple of days ago from one of the world’s largest consumer companies – Nestle – a corporate which once said to me proudly a few years ago that they sell to every country in the world…apart from North Korea (my instinct is that you can probably source a KitKat or a Nespresso capsule in Pyongyang although I have not checked this out personally).

Their growth estimate for 2017 of 2-4% tells you everything about the world today. At best it would show a year-on-year advance…at worst a contraction which would represent another leg down. It remains an uncertain world out there…but not without opportunity.

Maybe Nestle can crack it and certainly their global consumer peers Heineken and Danone were pretty optimistic about 2017 and beyond in their own corporate disclosures in the last week. In aggregate terms, most of the world’s corporates who have updated their numbers and views over the last few weeks have beaten market expectations.

[graphiq id=”3POijVl6W69″ title=”Nestlé” width=”500″ height=”748″ url=”https://w.graphiq.com/w/3POijVl6W69″ link=”https://www.graphiq.com” link_text=”Graphiq” ]

So where your pension fund manager dutifully said he was optimistic about America, liked banks and is worried about Europe, I would recommend doing the opposite. They will catch up eventually.

Well you did not think that corporate pension was the answer to all your dreams did you?

Chris Bailey has over 20 years of investment industry experience at long-only and long-short institutions as a global multi-asset fund manager, strategist/macro thinker and, in the earlier part of his career, as a securities and fund analyst.

In 2013 he founded Financial Orbit focusing on daily macroeconomic comment and securities analysis. In December 2016 his Twitter account (@financial_orbit) was named as one of the ’50 accounts investors should follow in 2017’.

The content on this page does not constitute financial advice and is provided for general information purposes only. Nothing on this page should be regarded as an offer to conduct investment business or to buy/sell any investment