Coombs (pictured) says that the quantitative easing programmes undertaken by governments worldwide are artificially inflating the valuations of both fixed income and equity investments, causing correlations to rise. Just two quarters of better-than-expected growth in the US could be enough to spark expectations of interest rate rises, the manager says, with potentially catastrophic consequences for investors.
"The consequences could be that when QE stops you get simultaneous shocks in the bond and equity markets and we get a simultaneous sell-off like in ’94."
Coombs says that as a multi-asset manager, it has never been more difficult to diversify and lower the correlation in his portfolio, as the main asset classes are moving more in step with government policy.
"It’s never been harder to diversify," he said. "I own conventional gilts to bring the volatility down on my portfolios and am trying to find funds with a zero correlation to that event, like playing rates and macro trading."
"These are not necessarily cheap funds, though, and that’s the problem. It’s never been tougher; it’s difficult to find value anywhere."
"It’s a question of running on the momentum and trying to take risk off the table where you can, but it’s difficult. It’s not comfortable at all to be running money now."
Coombs runs three multi-asset portfolios for Rathbones with varying attitudes to risk: Rathbone Multi Asset Enhanced Growth, Rathbone Multi Asset Strategic Growth and Rathbone Multi Asset Total Return.
On the Strategic Growth fund his most recent acquisition is BlackRock Gold & General, a highly contrarian play given the poor recent performance of the fund and sector as a whole.
BlackRock Gold & General has lost 31.82 per cent of its value over three years, according to data from FE Analytics, while the HSBC Global Gold index of mining companies has lost 42.07 per cent.
Performance of fund vs index over 3yrs
Source: FE Analytics
However, Coombs explains that it is one of the few areas where there is any value to be found.
"The mining sector has massively underperformed and has been a grim place to invest, but our view is there will be some restructuring in the industry and more discipline from new management," he said.
"We are seeing dividend growth in the sector and it could be becoming more of a yield play."
"We are always looking for asset classes that are out of favour. We have just started building a position on the medium-term view."
"A lot of the stocks lagged the commodity prices when they fell, so I am not sure they are as sensitive as people often think."
"Even at $1,500, the companies are going to be profitable. If we see gold fall to $1,100 dollars we would have to look again."
"Mining companies have been poorly managed and over-expanded and we think that can change and management is becoming more focused on dividends."
Gold lost 13 per cent of its value in two days last month, but has made back some of its losses since then.
Performance of gold spot price in 2013
Source: FE Analytics
"I think the recent weakness in gold was slightly overdone through some technical trading and hedge funds rather than underlying demand," Coombs said.
"We were buying CDOs when the sector was out of favour, we bought insurance funds after the Japanese tsunami and we bought healthcare funds a couple of months ago."
Another recent acquisition is the Jupiter Financial Opportunities fund.
Although some financial stocks have done very well over the last year or so, it remains a sector that is widely avoided.
Coombs explains that the recent noises from Lloyds and HSBC are more positive, raising the possibility of a return to profitability again.
"In the US, which is the biggest factor in a financial fund, we think that it will do quite well out of a housing recovery."
The manager has also upped his weighting to Europe in recent months, although he explains it is cheap for a reason.
"We have been buying funds that are more in European cyclicals, like the Cazenove European fund. It has a very cheap underlying portfolio."
"There’s not much out there that shapes up. The ones that are cheap have serious issues."
"The two markets that have underlying growth are the US and Asia and the markets reflect that and are up with events."
The manager says that he has recently sold out of Morgan Stanley Global Brands, which sits at the top of the IMA Global sector after an excellent run for the defensive multinationals it holds.
"It’s done very well but the underlying portfolio is very expensive now," he said.
The main problem for investors, according to Coombs, is that bond markets show similar signs of being overvalued.
"The trouble is fixed income markets are even worse and equity markets could be re-rated even more," he said.
"We could soon see BBB bonds with negative real yields."
Rathbone Multi Asset Strategic Growth is a £60m portfolio that targets returns of 5 per cent above CPI and volatility of two-thirds that of the MSCI World Equity Index.
Our data shows that the fund has made 43.63 per cent since launch in June 2009, while the CPI rose 36.79 per cent from the same month to its most recent reporting date in April.
Performance of fund vs benchmark since launch
Source: FE Analytics
The fund requires an initial minimum investment of £1,000 and has ongoing charges of 2.33 per cent.