The UK wealth management firm Ansbacher is so bearish on equities that a mere 5 per cent of its clients' assets are held directly through stocks. And its investment chief says the biggest risk to his investment stance would be a sharp revival in the stock market.

“At present, and depending on risk models, we have between 45 to 50 per cent of assets in hedge funds, 40 to 45 per cent in structured products, 5 per cent in equities and the balance in cash,” Michael Hollings, chief investment officer at Ansbacher,  told WealthBriefing.

Ansbacher, which is a wholly owned subsidiary of Qatar National Bank, was set up in 1894, and currently holds about $1 billion of assets under management.

His tiny exposure to the equity market, Mr Hollings says, is driven by his view that equity markets are unjustifiably optimistic about the outlook for the world economy, the continued impact of the credit crunch and the inflationary impact of central bank rate cuts, as demonstrated by surging commodity prices.

“We believe equity markets are overly complacent as to growth prospects for the global economy and that bond markets, except perhaps index-linked bonds, represent poor value in the face of rising global inflationary pressures. If we like particular sectors within equity markets we prefer to gain exposure via specialist or niche hedge fund managers and/or structures which provide much greater downside protection,” Mr Hollings said.

Mr Hollings approaches his investment calls from a “top-down” perspective, looking at global macro-economic developments, before deciding how to act.

An enthusiastic adopter of derivatives and structured products, Mr Hollings said his main focus in taking asset allocation decisions is to work out the overall risk that he wants to take for a client, and then acting accordingly. “In current market conditions that has resulted in higher use of hedge funds and capital protected structured notes,” he said.

“We use options as part of our structured product allocation. We can use them in different ways. For example we could use them to gain geared, capital protected, exposure to a chosen market or theme. Or we could use them to try and profit from spikes in single stock and/or index volatility by selling puts and/or calls, again all within capital protected structures, hoping, as has indeed happened, that volatility levels mean revert (return to their long-term average) and we are able to capture those gains,” he said.

So far, the investment performance from Ansbacher has been mixed, depending on the currency or risk model that it adopts for clients. Since the start of this year, returns have been either positive, 3.5 per cent, or negative -3.85 per cent, Mr Hollings said.