While Hamish Douglass said that Magellan’s strategy had performed well during the depths of COVID-19, he conceded that he had been too slow to capitalise on exuberance around vaccine roll-outs and the election of US President Joe Biden.
“Markets completely repriced risk about the re-opening of the economies, and our strategy has lagged in the last four months that cyclical re-opening trade. To some extent we were too cautious going into those vaccine results with our capital preservation,” Mr Douglass said.
“Right up to the very end of October we did very well…the time to act was before November 9. There’s no use reacting to a cyclical recovery after the horse has bolted. The question is, did we miss the cyclical recovery – and in hindsight, yes of course we missed the cyclical recovery.”
Mr Douglass said that Magellan had evaluated and passed on an investment in Wells Fargo – missing an opportunity to buy the stock before it skyrocketed 70 to 80 per cent – as well as travel-related businesses that have benefitted from the reopening trade, but defended the decision as being in the long-term interests of its clients.
“For us to buy cyclical investments, we’re going to have to sell some great long-term structural growth businesses – we’d have to sell Microsoft or Facebook or Alphabet or Alibaba – in order to fund something that’s much more short-term…we could have picked up some return, but in our strategy that’s running less risk than the market, we could never outperform the strongest market recovery the world has seen in 20 years,” he said.
But Mr Douglass also warned on a rise in “speculative bubbles”, one of the factors that he believes – along with mutant virus strains and unexpected monetary policy changes – could cause a “20 per cent market correction” in the next 18 months.
“I can easily get to $5 trillion of assets in the world that I would argue aren’t underpinned by any fundamental earnings….if that were to unravel itself, that could have a dramatic impact,” Mr Douglass said.
“People are at this envious party, like Cinderella at the ball, all hoping they’re going to leave the party at one minute to midnight – but the clocks have no hands. Is everybody smart enough to exit that? It’s going to end in tears – but they could go on for five years or they could end in three months. I have no idea.”
