Magellan Global Holding Most Cash Since 2009

I’d hardly call this ‘dumb money’. The Magellan Global fund manager, H. Douglass, has eviscerated and laid waste to fellow managers for years now. You’re only privy to this news of a very successful fund manager’s recent foray into risk aversion because of a charitable man in H. Douglass and the speed by which information passes through, in this day and age. Had this been the wondrous years of the Robber Baron era, you’d all be clamoring around the 3-d printer stock pits, hoping to snag a few shares– a fortnight before their absolute collapse.

Hamish Douglass, whose Magellan Global Equity Fund beat 99 percent of peers over the past five years, boosted cash to about 14 percent of assets by April to prepare for the “stiff headwind” he expected in share markets. He’d been sensing danger as far back as mid-2014. The stock-picking chief executive officer of Magellan Financial Group Ltd. now has almost 16 percent of his fund in cash, matching the biggest proportion since 2009, and no immediate plans to buy shares.
“We’re happy to bide our time in the cash position,” Sydney-based Douglass, 47, said in a phone interview. “We took a lot of our action well before any of this turmoil started.”

“Our central thesis is that China won’t collapse and that the yuan won’t collapse and that’ll we’ll get a continuation of the economic recovery story in the U.S. over the next few years,” he said.

The issue, as Douglass sees it, is valuations. If the economy recovers and the Federal Reserve gradually raises interest rates, some of the best-loved stocks are going to look overpriced. Once they fall he’ll start buying again, he said.

High-quality shares “are still at very expensive levels, effectively factoring in a zero interest rate world virtually forever,” he said. “We’re holding cash rather than the most defensive equities we would have otherwise held.”

“It’s better being six months too early than six minutes too late on these things, he said. “Maybe I was 12 months too early rather than 12 minutes too late.”
Still, when it comes to buying, he’s prepared to wait.

“China will steady over the next 12 months,” he said. “If that happens, as U.S. rates start to go up, we’ll get some interesting repricing that will enable us to deploy the cash.”

Even if he thought the risk was indeed systemic, H. Douglass is too embedded in the corporate apparatus of political correctness to say as much. Instead, like many of his peers, he leans on the cliche of valuations and how they might portend to lower equity prices.

No one sells 12 months in advance due to valuation concerns, unless they believe something grave was lurking in the shadows. Mr. H. Douglass is firmly embedded in the bear pornography camp, idly waiting for the world to burn.