
"It’s inevitable that these stocks are going to be more expensive, with interest rates where they are, but I think we are in for a much bigger bubble yet – one that could potentially be gigantic at some stage," he said.
Gray’s CF Miton Special Situations Portfolio is significantly underweight risk assets at the moment; according to FE data, it has 35.4 per cent in equities – around the same amount it has in cash. The manager has licence to hold as much as 100 per cent of his portfolio in equities.
The equity exposure he does have, however, is in defensive, income-paying stocks. The fund-of-funds manager has significant positions in the likes of Polar Capital Healthcare, Worldwide Healthcare and the Diverse Income Trust, and he also has a single-stock position in GlaxoSmithKline.
He says he is comfortable with his equity income exposure, but is watchful of rising prices.
"At the moment it’s a long way from bursting because people will continue to pay up for quality, reliable companies. However, though [equity income] valuations have been helped by the recent sell-off, we could get a situation where the sector is horrendously overvalued."
Gray’s CF Miton Special Situations Portfolio and Strategic Portfolio have been defensively positioned for some time now. In a recent interview with FE Trustnet, he said he was unmoved by the recent strong performance of equity markets, because none of the major macro problems had been dealt with properly.

Gray (pictured) says the big difference between his views and those of Ruffer is that he anticipates a deflationary environment for a sustained period – not an inflationary one.
"Eventually we may see inflation go high, but the problem with this argument is that we don’t know how long it will take the liquidity from QE to find its way into the economy," he commented. "I think it will take a while yet.”
Gray’s cautious stance has held him in good stead; according to FE data, the manager has returned 33.22 per cent in the last five years, compared with 9.84 per cent from his peer group composite, which has also been significantly more volatile.
Performance of manager vs peer group over 10-yrs

Source: FE Analytics
The manager also has a stellar 10-year record – with returns of 127.74 per cent compared with 87.19 per cent from his peers. He fully participated in the equity rally following the dotcom crash and although he called the credit crunch a year or two too early, his cautiousness paid off handsomely in 2008 – as the graph above shows.
Both his CF Miton Special Situations Portfolio and Strategic Portfolio are open to new investors, carrying a minimum investment of £1,000.