By Robert Stock Logie Cassells' history in the investment management industry is the history of his ...
By Robert Stock
Logie Cassells' history in the investment management industry is the history of his time at the firm previously known as Capel Cure Sharp (CCS), but now trading under the name Gerrard after merging with Greig Middleton.
Cassells joined the firm as a graduate in 1985 and was sponsored through his final year at the European business school. His transfer to the fund management area of CCS came on the day of the April 1987 crash. In 1992 he was given responsibility for the Master Portfolio Fund, which has now been renamed the Hallmark Growth Fund, engineering the realignment of the portfolio from income to growth.
In April 1997 CCS launched the Hallmark Income Fund, which invests 50% of an investor's assets in bonds and 50% in equities. Cassells has managed the product since launch. In October last year the CCS UK Growth Fund was altered to mirror the UK content of the Hallmark Growth Fund.
Cassells is known to favour the new economy and adheres to the idea that the bull market will continue to run as it will be supported by assets invested by the baby boom generation.
Did the events of the day you started in the industry leave any legacy in the way you invest?
The legacy that it left was the understanding that the psychological aspect of the market is very important and you ignore it at your peril. If you are fooled into thinking the best time to invest in the market is on a sunny day in June when there is not a cloud in the sky, that day usually marks the end of the world. Just like when the TechMark is flying, as with the Nasdaq in October 1998 when there seemed no light at the end of the tunnel, suddenly the markets reverse and the buying opportunity is missed. To me the psychological aspect of the market is fascinating.
How do you gauge the psychology of the market?
Our starting point is to listen to the market. We are not arrogant enough to believe that we can dictate the market.
People have tried to do that and certain companies have been blown away because of it. If you listen to the market regardless of what your discipline is you can be quite successful in gauging whether something is very heavily overbought or oversold.
Go back to the start of 2000 and take a stock like Vocalis as an example. In a quarter it rose from £1 to £10. Probability would suggest it would be very unlikely to do that again on no earnings.
In terms of the technology stocks, where people have a lot of difficulty about how to value them, how do you ride this wave.
What we try to do is sell confidence and buy fear. If you go back to 1995 and use the American Technology Index as a benchmark, you have had about 13 set-backs of 20% or more.
At the end of the day we are thematic investors who listen to the market to reinforce or disprove our calls.
You are probably best known as a technology investor. Is that fair?
It is wrong and it is right. In 1985 when we repositioned the Hallmark Growth Fund we came across many things but there were three trends that we chose to run with and which we continue to run with.
The first was that interest rates were set to fall considerably. The second was the new economy that started in 1982 was really taking hold and was starting to make a big difference in terms of productivity. The third was the three innovation engines for the productivity growth were the computer, the internet and the mobile telephone. If you positioned yourself in those three areas, you would hopefully perform very well.
Were there any supporting features to the market at that time?
The thing that has been running through that has been demographics. We are great believers in demographics. They correlate very well with the stock market. US demographics lag the market by 47 years, because that is when individuals reach their peak spending power. The baby boom generation, born between 1935 and 1962, correlates very closely with the US market boom. The demographics are likely to turn negative in 2008.
So you would not expect to see a bear market for the next few years?
The FTSE has got landlocked in the trading range of 6,500 to 7,000 where some sectors are going up and some sectors have been going down.
At the start of last year there was a huge speculative bubble, and the market crashed and now we have reached a base which is very, very healthy. On the Dow Jones the five year annual return has been 25%. Now since the bull market started in 1992 the average return has been 14% as against the 100-year return of 5%. And believe it or not the five year return of the Nasdaq has been 40%.
At the start of last year people's expectations were completely over blown. We are basically saying that over the next two years this five year incredible trend is probably going to return to 14% and a lot of people are saying "Oh, my God. Bear market, bear market."
But let us get real. A 14% return in the next two years is quite an incredible return.
A lot of people are calling for a bear market over the next two years, like a lot of people were calling for a bear market in October 1998, and I think in the next two years they will be as embarrassed as the people who called the bear market back then.
Will we see a return then to technology outperformance? And if that is the case, what will drive it?
I am not saying that technology will scream forward as it did in the last two years. The driver of technology shares from 1995 to the year 2000 was Moore's Law, which is the doubling of computer power every 12 months.
The next law that is coming into place is Telecosm or Gilder's Law which is the doubling of bandwidth every six months. If you are a believer in the bull market, and we are until 2008 because of demographics, this law has to come into play and bandwidth has to transform the internet into a really meaningful tool and WAP (Wireless Application
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