Walker Crips duo slash 'crowded trade' gold by 20%

Walker Crips managers Steve Bailey and Jan Luthman have cut exposure to gold ETFs by 20% deeming it a ‘crowded trade'.

The pair had exposure in the £181m UK Growth fund and £17m UK High Alpha, 2% and 3.4% in each fund respectively, but slashed this by 20% on Friday when gold bullion hit yet another record level of $1,877.

"We think gold has become a crowded trade and see more risk to the downside than the upside, while equities are cheap by comparison," Bailey said.

The managers sold when gold hit $1,855. They introduced the position in June 2007, at the start of the banking crisis, when bullion was about $730 an ounce. In sterling terms, Bailey said, this was just £361 compared to £1,118 it reached on Friday.

"It has been a very good trade. We are not saying it is the top of the gold run but it seemed the right time to take profits. If there is further upside, which there probably will be, we may reduce our position further," added Bailey.

The funds still have exposure to gold through equity positions in Randgold Resources and Anglo Pacific.

The managers have not made many other changes during the recent volatility as Luthman said they felt the funds are appropriately positioned ahead of the market falls.

Although he said he is "disappointed" with the position in Barclays, which is down around 28% over the past month, it will remain in their holdings for its prospects over the longer term. A 2% position was added on the UK Growth and £207m UK Equity Income funds back in March, the first time they have bought the bank in four years.

"There were a couple of reasons why we bought Barclays," said Luthman.

"We are in an environment of slow economic growth so it would be difficult to grow market share. We thought we would see growth in acquisition activity and Barclays might benefit.

"We were also taking a huge bet against the market since the summer of 2007 by having no exposure to UK banks. Nobody knows where the bottom will be but we are closer to it now than we were three years ago. We felt we were taking a huge market relative risk by not holding any banks."

To reduce this risk the managers added the position in Barclays position when the share price was trading around and below the 300p level in March. On Friday it had halved to 152p per share.

"We are not going to sell as the bad news is largely in the price and we think banks are enablers of the global economy."

Despite the Barclays position the UK Growth fund is still outperforming the UK All Companies sector over one year, returning 3.1% versus the sector average 2%, and is top quartile over three years, according to Morningstar.