Fears over the insurance sector’s large exposure to corporate bonds has prompted one hedge fund to go on the hunt for short-selling profits
Marshall Wace, the well-known hedge fund, disclosed a £60 million short position in blue chip insurer Legal & General, worth 0.5% of shares.
L&G is heavily exposed to corporate bonds and if the economy tanks and firms default on their debts the company could take a hit.
It would have to be a doomsday-type disaster to have an impact — the company can withstand billions of pounds of defaults — but its exposure has prompted fear in the market, and Marshall Wace’s canny computer strategies hope to take advantage.
L&G shares are down 40% this year but they rose 6% or 10p to 182p on Thursday.
Company news is settling into a pattern; firms suspend dividends, stress they have enough debt firepower to survive and the markets shrugs. The FTSE 100 was in one of those holding patterns, rising just 30 points to 5,485.30.
Big risers included BP and Shell (up 21p to 354p and 103p to 1455p respectively) after crude jumped 10% to $27.15 a barrel following positive remarks from Donald Trump about oil supply.
Over-50s insurer and travel firm Saga cut the dividend after its cruises were battered by the virus. Chief executive Euan Sutherland’s firm has stress tested how it would fare with a six-month cruise shutdown followed by a slow recovery. Based on the results, it is taking on £50 million of debt and the banks are giving Saga more breathing space on other loans. Shares fell 4.4% down 0.8p to 17p.
The tally of dividend cutters increased apace, among them Land Securities, M&C Saatchi, Serco, Wood Group and Close Brothers.
Top fund manager Terry Smith, who runs the UK’s biggest retail fund Fundsmith, also had some wise words on the stock market
He owns hotel chains InterContinental Hotels, down 65p today to 3087p, and US airline reservation business Amadeus. Bad news but he’s not fazed by the turmoil.
“If our equity in both is vaporised we will lose about 5% of our current portfolio...if that’s the worst thing that happens I’d suggest we can live with it.”