Twenty out of 22 hedge fund managers interviewed by Moonraker Fund Management in the US are buying gold to protect their personal wealth against excessive inflation.
Twenty out of 22 hedge fund managers interviewed by Moonraker Fund Management in the US are buying gold to protect their personal wealth against excessive inflation.
Jeremy Charlesworth, chief investment officer of Moonraker and manager of the Moonraker Commodities Fund and Global Opportunities Fund, met the managers on a recent fact-finding tour. He found that the vast majority of them were buying physical gold for fear that the quantitative easing programme being seen in the Anglo Saxon economies would eventually result in a bout of steep price rises.
Charlesworth sees more upside in gold despite the gains seen every year since 2001 and is looking to increase long exposure to gold in both the Moonraker Commodities Fund and Moonraker Global Opportunities fund.
The Moonraker Commodities Fund’s sterling share class delivered 19.3 per cent net of all charges over the year to 1 June 2009, compared with -41.2 per cent by its benchmark, the DJ AIG Commodity Index.
The Moonraker Global Opportunities Fund also outstripped its benchmark: its sterling share class returned 1.7 per cent net of all charges over the same period compared with -21.2 per cent by the HFRI FOF Strategic Index.
The outperformance of the funds resulted from them being positioned for a market downturn that proved to be even more excessive than anticipated, investing in underlying funds that were shorting both financials and commodities.
Before joining Moonraker, Charlesworth was investment director of the investment adviser to the TRF Fitzwilliam Commodity Plus Fund.
Charlesworth says: ‘Gold is the ultimate currency, performing best when economies are at extremes, whether that is inflationary or deflationary. The managers I met in the US know that if the politicians get the quantitative easing programme wrong then the value of money relative to real assets will dwindle. History is littered with such instances; governments have a track record of destroying the value of money over the long term and currency devaluation is a relatively painless way for them to reduce the value of the enormous debt that is hampering economic recovery now. Everyone agreed that sentiment is better than it was a few months ago but none of the structural problems have yet been fixed. Double digit inflation two or three years down the line is a very real possibility.’
Charlesworth found that the fund managers he met were in no rush to pay off personal debt but had positioned their finances to be able to repay their debts at short notices. They expected the financial crisis to be a lifestyle-changing event, with certain industries withering and new industries evolving. Industries they expected to prosper included energy and alternative energies, materials, healthcare, food and food manufacturers, while some were keen on railways as an alternative to road transport. They were negative on financial services and especially airlines, where they expected to see a lot of consolidation.
Charlesworth says: ‘Most of the managers were quietly betting that we are more likely to have brief period of boom and then a Japanese-style slow, grinding economy. We won’t necessarily feel bad about it: the hard part is in the transformation.’
Going forwards, because of ongoing volatility Charlesworth is investing the funds with managers who have a good understanding of the global macro situation and the risks it poses, having demonstrated their ability in event-driven trading. He is also withdrawing from long credit strategies, opting instead for those trading sovereign debt in Anglo Saxon countries looking to profit from the short side.
The Global Opportunities fund is also exposed to several long term themes, including inflation, inelasticity of supply in commodities, the growing middle class in emerging markets and a growing imbalance in supply and demand for energy. Charlesworth anticipates a major bout of price rises in the not too distant future as governments will be forced to allow inflation to rise to reduce the real value of debts.
Moonraker’s funds offer sterling, US dollar and Euro share classes and are available to both institutional and retail clients. The minimum investment is GBP15,000.
