It's fairly safe to say that investors all over the world have been enjoying some pretty healthy gains from the sharemarket over the past 10 or so months. Since bottoming out in late March, both the S&P/ASX 200 Index (ASX: XJO) and the American S&P 500 Index (INDEXSP: .INX) have rallied convincingly. The US markets are even currently above the level they were sitting at before the coronavirus pandemic become obvious.
With such a surprisingly good year for investors, many are now turning to 2021 and hoping for at least 'more of the same'.
However, one ASX fund manager isn't too excited that those investors will get what they wish for.
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Top ASX fundie weighs in
Hamish Douglass is the co-founder and chief investment officer of Magellan Financial Group Ltd (ASX: MFG). He is regarded as one of the best fund managers in the country. This is evidenced by Magellan's current market capitalisation of $8.8 billion, with more than $100 billion in assets under management. Mr Douglass' significant stake in Magellan makes him a billionaire. The size of Magellan is largely built on its consistent track record of performance. The company's flagship Magellan Global Fund (ASX: MGF) has returned an average of 15.56% per annum over the past 10 years.
So Mr Douglass is evidently someone who many ASX investors pay attention to.
According to a report in the Australian Financial Review (AFR), Mr Douglass is a little worried about the current state of global markets. He suggests to the AFR that the gains that markets have experienced in the past few months are motivated by a dangerous "fear of missing out [FOMO]", and that he feels that the majority of investor sentiment right now "remains worryingly bullish… which is out of step with the economic and scientific reality of the pandemic".
He notes the "positive developments" and "'best possible scenario' outcome" of the recent success of several COVID-19 vaccination candidates. Together with the results of the recent US elections, this has been a "nirvana outcome" for investors. Even so, Douglass is still recommending caution:
This pandemic, which I would argue is still going on, is an issue of scientific complexity that the market seems to be somewhat oblivious of in terms of the risks still in front of us… We've been much more worried about downside protection than upside.
"We don't bet big on vaccine trials"
The report notes that many of Magellan's funds have not outperformed their benchmark indices over the past few months. Over the period, Magellan's Global Equity Strategy held roughly 50% of its assets in cash at times. Also augmented by "very high-quality defensive equities". That was deliberately opposed to holding "growth stocks". However, Mr Douglass remains unapologetic, stating:
We're never going to bet big on [vaccine trials]. When you have a bias built in to protect capital, you're not going to participate in a very discretionary-led rally like this. You would expect us to lag a one in 50-year rally like this.
