By Christopher Webb
INVESTMENT banker turned global fund manager, Christopher Mackay, is not getting carried away with the run-up in global markets and is wary about short-term prospects.
''We remain very cautious about the near-term economic outlook, the current level of speculative flows and the future effects of the current political reactions to the crisis,'' Mackay said in his latest investment report. He said the funding of government debt was an increasingly important issue, as was the poor health of securitisation markets.
''Investors and politicians should not declare victory too early as complacency and overconfidence carry significant future risks. Consumer deleveraging is occurring, is likely to continue, and is likely to impact underlying GDP and resource demand,'' Mackay warned.
But it wasn't all grim. He said the pain and pessimism presented some mouth-watering purchase opportunities as panicked and forced sellers, momentum followers and short sellers were desperate to unload shares at low prices.
And talking about low prices, just imagine what their performance figures would have been if Mackay and fellow former investment banker Hamish Douglass had set up their funds management operation just a little later than they did 2½ years ago. The pair have assembled a collection of what they call outstanding businesses, such as American Express, Nestle, Yum! Brands, Wal-Mart Stores and other global cash cows.
The what-might-have-been fantasy specifically relates to their stake in American Express, which is their biggest holding, weighing in at 14 per cent of the Magellan Flagship Fund portfolio.
Mackay has been a big fan of American Express, long before the stock went into freefall, unfortunately. He reports that they modestly added to the stake recently and that's where the dream arises.
Their ''small purchase'' - exactly how many shares was not disclosed - was below $US10 ($A11.50) a share on March 6, when the market panic was at its highest level.
Well done, as the stock's low was $US9.71.
American Express has since rebounded to $US34.74, so just imagine what would have happened to Magellan Flagship's asset backing if they'd got set with serious money at or near the bottom.
Magellan Flagship could have done with some help. The scrip got down to 40 cents and has since firmed to 59 cents.
Also in the ''what if'' department is the currency. Mackay said they missed out on generating ''easy'' profits by not implementing a partial hedge of the fund's non-Australian-dollar exposure early this year.
''We expect future currency volatility and a continuation of the upward momentum of the $A would continue to hurt results,'' he said.
Meanwhile, he's sticking with ''wonderful businesses'' and said he is confident they will attract an eventual ''premium for quality''.
The reporter owns Magellan Financial Group shares.