Ben Yearsley: Returning star performer rises to new challenge

The burden of expectation weighs some down, whereas others thrive on it. William Littlewood's return to the investment world after a nine-year gap in May 2009 caused a stir, as many will remember he was a star performer of the 1990s managing Jupiter's Income fund. His Artemis Strategic Assets fund launched to great fanfare and was one of the most successful of the last decade. So has Mr Littlewood risen to the challenge or buckled under the pressure?

The aim of the fund is to beat both the FTSE All Share index and cash over any three-year period. The cash element of the performance objective is important, as it means Mr Littlewood has an eye on protecting the fund from large market falls. With those twin aims in mind, it is encouraging to report the fund has risen 23.4 per cent since launch, compared to a rise of 23 per cent for the FTSE All Share and a return on cash close to zero.

The fund contains shares, bonds, commodities and currencies, which the manager believes will increase in value. It can also use holdings that increase the fund's value if they fall in price, known as "going short" of particular investments. The simple way to explain this fund is you are trusting Mr Littlewood's undoubted ability to decide which shares, bonds, commodities and currencies might appreciate or depreciate and determine the overall blend of the fund.

One of Mr Littlewood's core themes is "deflation now, inflation later". He believes quantitative easing and zero interest rates were necessary to avoid depression, but this loose monetary policy will lead to inflation further down the line. In a deflationary environment government bonds look attractive as the income they pay looks valuable against low interest rates. However, the reverse is true in inflationary times and he has now taken short positions in this area in anticipation of inflation coming through.

Even though Mr Littlewood isn't hugely optimistic on the prospects for equities, recent share price falls have persuaded him to an increase his equity weighting from 60 per cent to approximately 80 per cent. Most companies he has bought into are defensive, larger companies or overseas companies, especially in US. Another recent change has been his views on currency markets. Having been negative on sterling for most of the last 12 months, he has recently moved from a short position (to benefit from depreciation in the value of sterling) to a long position. His view is sterling has fallen too far against various other currencies and the coalition Government is better than many think and will last the full five years with a focus on public debt reduction.

A further consideration in terms of currency is that some of the investments are denominated in foreign currencies (mainly the US dollar) such as shares and commodities (where he has an 8 per cent weight, half of which is in gold). When the UK market falls, this fund tends to do comparatively well as the dollar rises, Mr Littlewood says. This is one of the benefits of his multi-asset approach and having a currency strategy.

The main mistake he has made over the last year was underestimating the strength of corporate profits. But if you invested in this fund at launch, a 23 per cent return in a year is more than reasonable. Mr Littlewood has lived up to expectations and has risen to the challenge, albeit over this short time frame. Each time I have met him over the last 12 months, I have been more impressed and his fund is now one of my biggest holdings in my Isa and Sipp. By investing in this fund you are buying William Littlewood's view of the world, and although he won't get it right all the time, I believe this is a fund you can confidently tuck away for the long term.

Ben Yearsley is investment manager at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent

Mark Dampier is away