Leading international equities and infrastructure specialist fund manager Magellan Financial Group Ltd (ASX: MFG) has grown its business from a standing start in 2007 to overseeing around $33 billion in funds under management (FUM) today.
One of the key factors in Magellan's growth in FUM has been an impressive track record of investment performance. Given the returns achieved by portfolio manager Hamish Douglass it could be wise to heed his latest advice…
Contained within the Magellan Global Fund's March update was the following:
"We continue to believe that there is an elevated probability that the massive compression of risk premia observed in recent years will unwind over the next 12 months or so as investors focus on a normalisation of US interest rates. As a consequence, we remain focussed on a prudent portfolio construction likely to exhibit substantially less downside risk than the market in the event that global markets deteriorate materially."
These are certainly words of warning and coupled with the fund's increased cash levels – raised from 11.3% of the portfolio as at the end of December to 13.9% as at the end of March – a cautious approach would appear to be the order of the day at Magellan.
Magellan's conservative positioning and outlook is one that other investors may choose to emulate if they also have concerns about the current pricing of stocks as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) flirts with the 6,000 level.
If you're looking to boost the defensive nature of your portfolio moving to cash is one strategy. Another is to buy into companies which are run by managers who also act in a risk adverse manner and have the balance sheet firepower available to pounce on opportunities when they present themselves.
Here are two companies that could actually come out of a major downturn in a stronger position than prior to any material deterioration in markets.
- Premier Investments Limited (ASX: PMV) is one company worth considering given its cashed up balance sheet and a management team that has a history of biding its time to strike when the right investment comes along.
- Platinum Asset Management Limited (ASX: PTM) is a value-focused fund manager whose funds under management should (in theory at least) potentially outperform more in difficult markets than in bull markets.
