Montaka's Macken goes max cash: "We’ve changed our mind”

Move over capital deployment. Preservation of capital is becoming the strategy du jour for an increasing number of fundies.

Andrew Macken, who manages around $500 million in global strategies, is the latest to make a drastic pivot in order to shield retiree clients in particular from the volatility wrought by the Covid-19 crisis.

Image: Andy Macken, Chief Investment Officer, Montaka and Montgomery Global funds

“We have changed our mind on the risks around Covid-19 and the positioning of our global equities portfolios have significantly shifted. While I realise we may attract criticism for changing our thinking and our positions we have done so on the basis it’s the right thing to do for the people who’ve entrusted their capital to us.”

Within the Montaka Variable Net Strategy, Macken was slowly reducing net market exposure from 70% at the start of the month. On Sunday, he decided to pull the trigger and leapt to 20% (comprising 80% long and 60% short), the lowest in the fund’s history. The Montgomery Global Equities Fund meanwhile jumped to its maximum cash weight of 30%, from 5.1% at the end of February.

Magellan Asset Management today also revealed it was going on the defensive, boosting cash in its strategy from to 15%, from 6%. Russell Muldoon of the REQON Broadcap Fund had taken his fund to 90% cash earlier in March and has since moved to 100%.

Covid-19 could ravage the U.S. economy, cause prolonged downturn

Macken’s rationale for the big change is that Covid-19 cases in the United States could spike higher as the Trump Administration, and many other western governments, have been behind the eight ball in pandemic preparedness and testing.

“Hospital capacity under this scenario will likely be insufficient and the potential for large scale lockdowns in the US is increasing by the day. This translates into a much more significant and relatively longer lasting risk in U.S. aggregate demand than we had previously assessed.”

Global coronavirus cases have topped 200,000, with fresh cases in the U.S. soaring nearly 3,000 overnight to 9,249, and total deaths at 149.

Economists at Goldman Sachs and Morgan Stanley have already declared that Covid-19 has caused a global recession, while S&P Global is forecasting the severity of the outbreak would cause the U.S. economy to contract 7% cumulatively in the first two quarters.

Great opportunities on the horizon

Macken admits that a high cash position would mean that his strategies would likely underperform in the event of a snapback, but it’s a risk he’s willing to take given the demographics of his client base and if the pandemic worsens.

“Many of our clients are retired; my father is 90, my mother is 76. I want nothing more than Covid-19 to simply fade away, leaving everyone in our society healthy and unharmed. But if it does not, we strongly believe we should at least seek to preserve as much of our clients' capital as possible."

As for his portfolio mix, Macken is:

  • Trimming back or shorting businesses whose revenues may not materialise in the next 6-12 months, have fixed costs (such as retailers) and levered balance sheets.
  • Adding businesses that have sustainable costs which are less fixed. Music and podcast streaming phenomenon Spotify (NYSE:SPOT) is a recent addition to his portfolio.

He said he’s prepared to act swiftly if conditions change again, and is closely watching governments' efforts to contain the virus and in particular, a clear pathway to a usable vaccine.

“For life to get back to normal we need to have a usable vaccine. The best estimate on that is 12-18 months. So to have life and economies disrupted the way they’re being disrupted for a prolonged period – that in part is the basis for the drastic change in our portfolios.”

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3 contributors mentioned

Vishal Teckchandani
Contributing Editor

Vishal has over 12 years' experience in financial journalism and has a particular interest in asset allocation, ETFs and global equities.

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