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Fund manager turns ultra-defensive Add to ...

When Nick Majendie of Majendie Wealth Management says that he is taking a safe-rather-than-sorry approach to the current market turbulence, he isn’t kidding around. In his latest strategy note, he pointed out that he has shed all financials -- yes, even our beloved Canadian banks -- and oil and gas producers from his Defensive Income and High Income portfolios over the past couple of months.

And over the past two weeks, he trimmed each of his 20 holdings in his Advantage Equity portfolio, which brought his cash level up to an astounding 33 per cent. What he has now done with some of that cash is equally interesting: He has directed 10 per cent of it to a Canadian-based S&P 500 reverse exchange-traded fund – an ETF that will rise as the S&P 500 falls, and vice versa.

“Since this is also hedged back into Canadian dollars it can benefit from both a decline in the U.S. market and a decline in the Canadian dollar,” Mr. Majendie said.

Europe is the big reason behind Mr. Majendie’s caution, even with the S&P 500 and the S&P/TSX composite index down 4.8 per cent and 9.5 per cent, respectively, this year.

“It is hard to tell at this stage what the endgame will be in Europe, the main reason being that the politicians themselves are undecided on the best solutions,” he said.

“The risk of a banking situation there that resembles 2008 is not insignificant and the average for Credit Default Swap of 115 banks across Europe is now higher than it was in early 2009. While Canadian banks and markets are relatively unexposed, North American markets would undoubtedly be affected by any further deterioration in the European banking situation.

 

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