FE Alpha Managers Francis Brooke and Sebastian Lyon (pictured), who have been cautiously positioned since the 2008 downturn, embody this stubbornness.
In a note to investors back in February – when both Trojan and Trojan Income were vastly underperforming their peer group year-to-date – Lyon quoted Yogi Berra’s idiom “it’s déjà vu all over again” to convey his frustration at the over-optimism among investors.
At the same time, many managers upped their cyclical weighting, citing the long-term refinancing operation (LTRO) as a strong tailwind.
Industry icon Bill Mott reported in late January that he was increasing his exposure to financials and miners, while Fidelity’s head of multi-asset Trevor Greetham, and Barings’ Percival Stanion, moved overweight risk assets for the first time in nine and 12 months respectively.
Since then, however, markets have reversed following renewed tensions in the eurozone and weaker-than-expected data in China and the US.
In recent weeks, both Greetham and Stanion have performed a complete U-turn in their asset allocation, increasing their exposure to government bonds, gold and cash.
"There was a high probability that 2012 would be a repeat of 2010 and 2011, so it does not surprise us that, once again, eurozone difficulties are knocking markets off course, just as they did in the spring of 2010 and the summer of 2011," said Lyon.
"The remarkable complacency of the first quarter has given way to the recognition that the fiscal compact agreed last December, combined with the ECB’s Damascene conversion to money printing via the LTRO, temporarily addressed the liquidity symptoms of the euro’s problems but not the solvency disease."
Performance of funds versus index in 2012
Source: FE Analytics
Lyon and Brooke’s decision not to increase their risk exposure has been a good one; while they lagged the FTSE All Share back in February, Trojan Income is up versus the FTSE All Share year-to-date and top quartile in its UK Equity Income sector, while Trojan is now only slightly behind the index.
Paul Marriage is another who has been rewarded for keeping his feet on the ground. In an interview with FE Trustnet back in February, the FE Alpha Manager said he was unmoved by the fact that his Cazenove UK Smaller Companies fund was lagging markets, because he felt a market correction was on the horizon.
Just four months later, the portfolio is now a top-five performer in its UK Smaller Companies sector year-to-date, with returns of 13.7 per cent.
Lyon claims there is more to worry about than just the eurozone, but believes the bottom of a 10-year secular bear market in equities is getting close.
"Investor attention is clearly focused on the European periphery, but the US will, at some stage, become the centre of attention once more," he said.
"There is bound to be more talk of the fiscal 'cliff' as we move towards the presidential election in November."
"To make matters worse, the difficulties in developed markets are now accompanied by a more pervasive slowdown in key emerging markets, notably the BRICs."
"Nevertheless, the negativity towards stock markets does offer encouragement. When a consultant actuary is quoted in the Financial Times as saying 'there are not enough bonds in the world', you know we are getting closer to the end of the bull market in bonds and the bear market in equities."