Cash ETFs in focus as hedge fund manager Crispin Odey turns to cash

Oct 7th, 2015 | By | Category: ETF and Index News

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Crispin Odey, a London-based hedge fund manager, has warned of a new international financial crisis which he believes will reveal itself shortly. The founder of Odey Asset Management has moved a significant 29% of the $11.7bn Odey Opus Fund into cash equivalents with the aim to preserve capital in the face of a global financial storm. Investors who follow the movements of the famed fund manager may wish to consider shifting part of their own portfolios into exchange-traded funds benchmarked to cash-like assets.

Legendary hedge fund manager Crispin Odey turns to cash

Crispin Odey, founder of Odey Asset Management.

Mr Odey has cited the recent devaluation of the Chinese renminbi as the source of the impending disruption. He states that the devaluation has ushered in an era of “currency wars, tariffs and the formation of trading blocs”, noting that the financial crisis will likely be more pronounced in emerging markets. Meanwhile, in developed economies, debt burdens which have not been eased by years of monetary stimulus, are predicted to be a major influence in the upset. The extent of the crisis has been likened by Mr Odey to “the new US housing crash”.

Speaking of the market turbulence that started in August, he commented: “Our overriding conviction is that we are nearer the beginning of this process than the end. Stock market valuations are so overextended that they will need to fall 30%-40%” before they offer a compelling bargain.”

Mr Odey, whose Opus fund has returned 270% between its 2001 launch and September 2015, is usually known for his bullish outlook. This change in conviction will likely have investors closely watching for early warning signs of an unravelling in the markets.

Those who wish to transfer a portion of their portfolio into cash-equivalent ETFs may wish to consider the following options:

The Lyxor Fed Funds US Dollar Cash UCITS ETF (FEDF LN) tracks the Solactive Fed Funds Effective Rate Total Return Index. The fund is representative of the performance of a cash notional deposit paying the Federal Funds Effective Rate, which is the US short-term reference rate for monetary market, with daily reinvestment of interest earned in the deposit. It carries a total expense ratio (TER) of 0.15%.

The PIMCO Sterling Short Maturity Source UCITS ETF (QUID LN) invests primarily in short-term investment grade debt, denominated in GBP and up to 50% in other G7 currencies which will be systematically hedged to GBP. The effective duration is not permitted to exceed one year in this fund. There is a TER of 0.35%.

The PIMCO US Dollar Short Maturity Source UCITS ETF (MINT LN) invests primarily in short-term investment grade debt, denominated in USD and also maintains an effective duration below one year. The fund, as of 31 August 2015, had exposure to investment grade credit (71%), mortgages (13%) and other short duration instruments (8%). The TER is 0.35%.

The iShares $ Ultrashort Bond UCITS ETF (ERND LN) tracks the Markit iBoxx USD Liquid Investment Grade Ultrashort Index. It offers diversified exposure to very short maturity fixed and floating rate corporate bonds issued in US dollars that are classified as investment grade. As of 28 September, the effective duration was 0.3 years. The fund carries a TER of 0.09%.

The iShares £ Ultrashort Bond UCITS ETF (ERNS LN) offers diversified exposure to very short maturity fixed and floating rate corporate bonds issued in GBP by tracking the Markit iBoxx GBP Liquid Investment Grade Ultrashort Index. The fund only invests in investment grade debt and, as of 28 September, the effective duration of the fund was 0.2 years. The TER is 0.09%.

 

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