Hardcore of fund bosses bank on falls

A DWINDLING number of hardcore high-profile fund managers continue to hoard cash and shelter in defensive equities, in the belief that recent gains on the FTSE 100 are part of a bear market rally – not a recovery.

As the FTSE 100 yesterday broke through the 4,500-point barrier, compared to lows around 3,500 just three months ago, economists warned that “perma-bear” fund managers risk a decade of underperformance if they fail to buy stock.

Cazenove heavyweight Marcus Brookes, who controls £1.5bn in his fund of funds range, yesterday repeated his fears that some traders are buying equities for emotive reasons, a phenomenon he dubs the “behavioural finance trap”.

A spokeswoman for Brookes said: “He still believes we’re not going to see the end of this for a while.”

And Albert Edwards, the strategist who advises asset managers at Société Générale, continues to maintain the rally is a bear market one.

Fund giants David Stevenson and Andrew Kelly, who head Ignis’ Cartesian funds, are suffering after retaining their net short position on the UK market well into the current rally, according to one observer.

A source close to the pair – who will publish their official investor report tomorrow – said he thinks their views are “softening” towards the bull market.

Investec Asset Management chief strategist Max King said fund managers banking on a bear market rally could suffer losses that will take as long as 10 years to repair.

Brewin Dolphin strategist Mike Lenhoff said: “Once markets move above critical levels – such as hitting 4,500 points – this tends to bring in a whole new wave of momentum players and it gets increasingly difficult to clamber on board.”

Bear market rallies occur when falling markets show promising gains before tumbling beneath earlier lows.