Wealth Manager Cuts Stocks Exposure to Zero From 60%
Zero exposure to stocks is the best way to position a portfolio over the next few months as markets look set to remain volatile due to a "pretend and extend" strategy on Greece and negative indicators for emerging markets, Bruno Verstraete, CEO at Nautilus Invest told CNBC.
"Overall in our asset allocation, we have been pretty bearish on equities, having none – zero percent – since the beginning of April and that has helped us quite a lot in the past few months," Verstraete said.
Nautilus will remain at zero percent over the summer, having come down from sixty percent in January, he added.
The firm is now nearly 75 percent in government bonds of varying maturities and just under 17 percent in corporate bonds, with the balance in cash, in the form of 3-month treasury bills, Verstraete told CNBC.
Verstraete said there was a lack of clarity over whether the latest round of austerity measures and aid for Greece amounted to a credit event, adding the impact of whether it was or not would be significant.
"I think the answer we haven't got so far is whether or not this will be a credit event, I think that in the short term will determine the course of the whole Greek story," he explained.
"If it is a credit event and it is classified as such, it will have a huge impact on the financial industry." He said the current situation amounted to a "pretend and extend strategy," but it bought time for banks and private investors to reduce their exposure to Greece.
"I think it is definitely a pretend and extend strategy. The good thing I can see from it is the fact that it is extending the time people have to react against it, I mean banks can offload a bit of their Greek exposure; private investors who will be voluntarily participating in helping it move forward, they can offload a bit of that exposure," he added.
Greek Bailout 'A Hybrid'
Verstraete believes the latest bailout would qualify as a credit event "unless the magical formula of saving and stimulating the economy at the same time is invented pretty soon by the Greeks."
At the moment the situation looks like "a hybrid" there is a willingness to participate from investors but with expectations of something in return, Verstraete said.
"I think the voluntary aspect is very important about it, what we see now is that everyone wants to participate, but they want something in return for it, so they want to offload the risk on the one hand, by extending it for a much longer period of time, but at the same time they want something in return," he explained.
However, he was clear that buying Greek debt was not something to consider as there was a significant amount of debt that would have to be paid off eventually.
"I wouldn't buy any Greek debt because as I said, I think the Greeks still have to pay it back, don't forget that.
"Let me be clear, I do not want a Greek bond for the next 50 years knowing that within fifty years the solution, the final solution will need to be found," he said.
Verstraete said he believed market volatility would continue in the second half of the year and a number of factors would continue to weigh, particularly a slowdown in the Chinese economy and disagreement over raising the US debt ceiling.
"Well I think in the end the leading indicators will definitely lead the way (in the second half). We do not see any flattening out from the negative intonation they have at this point… today we had numbers out in China which actually point to further deterioration of the economy in the only growth economy in the world," he said.
"So as long as that doesn't really improve a lot and then I'm not talking about the emotional factors such as the stress tests, such as the raising of the debt ceiling (in the US), there's a couple of emotional things that will put more volatility in the markets," he added, emphasizing that the global economy as a whole was what mattered.