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Rock solid in face of feared ‘flap’ over France and Greece

After a disappointing 2011, Architas’s Caspar Rock has returned to form in the first months of this year, and his hedge against volatility could pay off if eurozone woes hit markets again.

Rock solid in face of feared ‘flap’ over France and Greece

After a disappointing 2011, Architas’s Caspar Rock (pictured) has returned to form in the first months of this year, and his hedge against volatility could pay off if eurozone woes hit markets again.

Caspar Rock, chief investment officer at Architas, has warned of a wobble in markets over the elections in France and Greece, as he reduces his holdings in risk assets and hedges against volatility.

‘The real problem for Europe is a lack of growth; you need strong nominal growth, and you aren’t really seeing it at the moment,’ said Rock, who runs the multi-manager suite at Architas, an AXA Wealth subsidiary.

‘I think markets will get into a flap about the French and the Greek elections, and that will give you a background of instability,’ he said.

His comments came after worries over Spain’s budget woes triggered a fresh outbreak of turmoil in the markets, and ahead of the polls in France and Greece that have been set, in part at least, to be a vote on the eurozone’s austerity policies.

Hedge against volatility

In the belief that the first-quarter rally was running out of steam, Rock initiated a position in March in Amundi Absolute Volatility World Equities, a fund that seeks to gain from the ebb and flow of volatility in markets.

‘We felt that volatility was too cheaply priced, and we wanted a bit of a hedge in the portfolio,’ Rock said.

He also began to take money out of some of the funds’ holdings across the board. As of the end of March, the Amundi vehicle was the third biggest position in Architas Multi-Manager Balanced, his largest active multi-manager fund, at 4.3%.

The range of funds, which includes Architas Multi-Manager Reserve, Cautious Income, Growth, Dynamic and Income, has had a mixed performance: a bruising 2011, but stronger long-term showing.

In the past three years, the £163 million Balanced fund has returned 44.8%, beating the 38.8% of the benchmark LCI Mixed Asset GBP Balanced. But it has shed 2.15% in the past 12 months, mostly as a result of a difficult 2011 in which it lost 14.8%.

‘Quite honestly, 2011 was probably the toughest year I’ve seen as a fund manager. It was very binary: you either got it right or you got it wrong,’ Rock said.

Not aggressive enough

Rock said a number of his key calls had turned against the funds. He said he had not been aggressive enough in reducing exposure to higher-beta, more cyclical businesses in April 2011, before the markets carnage of the summer.

While he reduced a weighting in Ed Legget’s Standard Life UK Unconstrained fund and raised one in Neil Woodford’s Invesco Perpetual High Income, he felt he should have sold out of the former and moved all the proceeds into the latter.

Similarly, Rock said he did not sufficiently trim a bias towards small- and mid-cap firms, and a move out of European equities into emerging market stocks failed to protect against share price falls, as emerging markets were hit just as badly as Europe.

In fixed income, the funds were short duration and underweight gilts. ‘But actually what happened was gilts became a safe haven, and the longest duration assets did best,’ he said.

A decision to maintain those positions in December-January, however, has spurred a strong recovery by the funds in 2012, said Rock, branding their recent performance the ‘mirror image of last year’.

Despite his concerns over the outlook for Europe, he believes quality government bond yields will gradually rise in the near-to-medium term.

He also predicts 10-year US Treasury yields to increase, but not significantly. ‘I think the balance of probabilities says they should be higher in a year’s time,’ he said. ‘You have an economic recovery in the US; you’re getting a normalisation of the yield curve.’

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