For example, last year when Europe was flirting with deflation – a scenario in which it is almost impossible for share fund managers to make money – he made three significant moves.
His first priority was to hold as little in shares as possible. The second was to have the maximum he could hold in bonds
– about 35%. Then he looked for shares which acted like bonds – such as motorway concession operators which had a rising income and were guaranteed by the government.
The willingness to make such asset allocation decisions is just one of his distinguishing characteristics. Unusually, in five years Mr Hendry has not spoken to a stockbroker nor met with a European company. He leaves that to Odey’s team of analysts which he relies on to help him test his investment ideas.
Investors should be aware that the composition of the portfolio could change significantly although as of the latest portfolio the fund had over 90% in shares. Also trying to time the markets is a difficult task few do well consistently.
However, Mr Hendry views the risk for this fund’s investors as he does for his hedge fund clients: the risk of losing their money. This is in contrast with more mainstream fund managers who are more concerned with the risk of underperforming their benchmark index.
Because of the manager’s risk aversion the fund is unlikely to top performance tables when the stockmarket is booming. Yet his focus on absolute returns is obvious when looking at annual performance over the last five years. Despite three years of falling markets the fund only fell in one year and that was by just over 1%.
He also tries to manage risk by holding a large number of companies. Currently he tends to run about 100 holdings but is willing to hold a more concentrated portfolio during sliding markets.
Mr Hendry says running hedge funds makes him accustomed to selling. “I’m more like a centipede.
“Centipedes can lose a leg and still march on.”
