Mundy protects against possible failure of 'financial experiment'

Investec’s Alastair Mundy is continuing to hold Norwegian bonds and gold in his £1.56bn Cautious Managed fund to protect investors should the efforts to stabilise the financial system eventually fail.

He says the results of the current deleveraging and attempted reflation are unknown and calls it "one of the greatest financial experiments ever conducted".

There are also "genuine risks the experiment may be unsuccessful", he adds.

"If investors lose confidence in the major currencies, our assumption is that switching from the currency of one struggling economy or region - be it US dollar, euro, sterling or yen - into another may be akin to deckchair swapping on the Titanic," Mundy says.

"If so, finding an economy with very different characteristics may appeal, and Norway is the stand out choice here.

"Similarly, if investors fret about money being printed to pay off various promises, they may well turn to an asset in more finite supply: gold."

Mundy has also boosted exposure to cash, short-dated gilts and US index-linked government bonds to stave off any damage to performance that could be caused by inflation.

"Inflation proof bonds - inflation proof if held to maturity, that is - provide a good amount of certainty for the fund, while cash allows maximum flexibility if attractive investment opportunities arise," he explains.

In the equity portion of the portfolio, the contrarian investor holds GlaxoSmithKline, Unilever and Royal Dutch Shell, as well as cyclical companies such as Signet Jewellers, Travis Perkins and Kingspan.

Mundy says he chose these companies as they look cheapest from a normalised view of the profits rather than, like other investors, looking for companies on the view there may be a double dip recession. He says too many of his peers are chasing "companies with excellent growth prospects, irrespective of either their history or economic conditions".

"These companies tend to trade on relatively high ratings, an indication of their earnings strength and expected progress. But, as always, we believe investors are tempted to pay too much for the seductive promises these shares provide," he adds.