Shorting the 20yr+ Treasury is this Fund Manager’s Highest Conviction Idea
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SeekIng Alpha (SA): In your portfolios currently, how are you allocating among different asset classes?
David McMillan (DM): At the beginning of 2009 our biggest concerns came from a number of directions. We wanted to ensure that if the declines of the previous year continued we would be protected on the downside from further drops in portfolio values. We also needed to ensure that if we saw a dramatic recovery we could participate and generate respectable returns. It was the classic problem of trying to have low risk with solid growth, and in one of the most challenging economic periods of our time. As active managers, it wasn’t enough for us to sit on the sidelines and hope that a recovery would erase some of the losses that 2008 delivered. This led to holding a diverse mix, heavily weighted in fixed income investing, including treasuries, inflation protected bonds, corporate bonds, international bond funds, high yield bonds, commodities, and limited number of domestic and international equities (particularly in the green and clean technology areas). This saw us outperform our market benchmarks with lower risk levels. We had seen numerous opportunities within the fixed income space, and they didn’t fail to deliver. Even the higher risk fixed income investments were more attractive than most equity positions from a risk-return standpoint.
Disclosure: Caledonia and/or its principals currently hold(s) position(s) in TBT
