GMO's Montier Shifts To 50% Cash, Sees 3 "Hellish" Scenarios For Markets

"This is definitely the most difficult time to be an asset allocator," warns GMO's James Montier, telling conference attendees in Munich that he hasn't been this risk-averse since 2008. Having warned six months ago that "stocks are hideously a central bank sponsored bubble," Montier sees three different "hellish" scenarios and as CityWire reports, warns investors, "I think it's best to stand a bit and hold onto some dry powder," despite the groupthink idolatry being practiced around the world.


As CityWire reports,

"This is definitely the most difficult time to be an asset allocator. It’s very hard to find value," Montier told Citywire at the Value Intelligence Conference in Munich, an event hosted by Value Intelligence Advisors (VIA).


The fund manager recently cut his equity exposure to US 'quality' names and, as such, has upped cash in his Global Real Return fund. He currently holds 20% in liquid assets, i.e. cash and derivatives, while a further 30% is invested in fixed income.


"2007 and 2008 we had about 80% of the fund in non-risky assets. This has been the first time since that we have had over 50% in very liquid assets," he said.

And various levels of hell are on their way...

Montier said he is currently breaking up his market view into three different 'hellish' situations.


Firstly, there is a kind of 'stable' hell, for Montier this is the worst and least likely situation, where rates stay low over a long period and volatility and as such entry opportunities are minimal.


Then he describes something near to purgatory, which, Montier said, is the most helpful environment for investors. This is where he sees the market still moving between a low interest rate and a rising interest rate scenario.


The final of the three scenarios is an ‘unstable’ hell, where the market goes in one direction but keeps getting back off of course.


"I can't tell you exactly how it is going to work. We may see US rates rise in the autumn but I wouldn’t take it for a given."

So where to invest?

His recent cut in US equities included exiting stocks such as Proctor & Gamble and Microsoft, which he sold on valuation grounds.


"We still see these names as a relatively good option for equity investors but as we are value investors, we decided to cut them back a bit as they were getting expensive and so we’d rather hold cash."


One area where Montier thinks there is still opportunity to select find value is in the emerging market space. Here he has added to names such as Russian oil and gas major Lukoil and Korean telecoms group Samsung.

But ultimately, Montier has strong words for investors...

"Investors are constantly asking me how long I’m going to keep the cash position and what is going to be the ultimate trigger for reducing. I can’t say that, it does worry me if we are in this stable hell environment but at the moment, I think it’s best to stand a bit and hold onto some dry powder."