Simon Evan-Cook says we’ve found ourselves in a stealth bear market and, as such, he takes some investing tips from Seinfeld.

The classic definition of a bear market is “a period in which the prices of financial securities fall by 20 per cent or more”. And while the market turbulence has only registered as a brief blip for equities, it has been more sustained for multi-asset investors.

He says it is understandable clients have been tempted by the high rates available on cash, but says even those rates deliver a negative return relative to inflation. 

What then, if not cash?

Evan-Cook cites the Seinfeld sitcom and its Costanza Principle – where doing the opposite of what your instincts tell you yields the correct decision. 

Ignoring the urge to invest in crypto during the pandemic in favour of a value fund would have been, in his view, the correct call – and today is no different. 

Despite this, a closer look at our proprietary database shows that Downing holds a sizable cash pile of around 17 per cent. 

We asked Evan-Cook about this and he explained that he holds cash to “dilute” the equity allocation.

He said: “Our lower-equity funds are designed and managed for those investors who are less capable of dealing with short-term market sell-offs, and we still think cash is a useful asset in providing this short-term protection.”

Evan-Cook also highlighted that some clients might resent paying management fees to hold cash, which is why he doesn’t charge a management fee on the part of each fund that’s not held in equities.

Downing’s investment strategy is somewhat idiosyncratic – allocating an unusually high proportion to global equity. 

On our Asset Allocator podcast back in July, Evan-C0ok told us that one of the biggest risks to the success of Downing’s funds is himself, and allocating to global equities is a way of mitigating that risk, as by using a global fund he is essentially outsourcing some of the asset allocation.  

His near-30 per cent holding in global equity funds is thus used as insurance against a bad call, while the remainder is concentrated within highly-active equity funds in specialist regions. 

That 30 per cent allocation is vastly above the 7 per cent average exposure in the balanced portfolios of the allocators we cover, though that number has risen sharply from 5.8 per cent over the course of 2023. 

Given the volume of geo-political news out there, it is not surprising some allocators are taking the broadest possible view when buying equities.