Hardcore of fund bosses bank on falls

A DWINDLING number of hardcore high-profile fund managers continue to hoard cash and shelter in defensive equities, in the belief that recent gains on the FTSE 100 are part of a bear market rally &ndash; not a recovery.<br /><br />As the FTSE 100 yesterday broke through the 4,500-point barrier, compared to lows around 3,500 just three months ago, economists warned that &ldquo;perma-bear&rdquo; fund managers risk a decade of underperformance if they fail to buy stock.<br /><br />Cazenove heavyweight Marcus Brookes, who controls &pound;1.5bn in his fund of funds range, yesterday repeated his fears that some traders are buying equities for emotive reasons, a phenomenon he dubs the &ldquo;behavioural finance trap&rdquo;.<br /><br />A spokeswoman for Brookes said: &ldquo;He still believes we&rsquo;re not going to see the end of this for a while.&rdquo;<br /><br />And Albert Edwards, the strategist who advises asset managers at Soci&eacute;t&eacute; G&eacute;n&eacute;rale, continues to maintain the rally is a bear market one.<br /><br />Fund giants David Stevenson and Andrew Kelly, who head Ignis&rsquo; Cartesian funds, are suffering after retaining their net short position on the UK market well into the current rally, according to one observer.<br /><br />A source close to the pair &ndash; who will publish their official investor report tomorrow &ndash; said he thinks their views are &ldquo;softening&rdquo; towards the bull market.<br /><br />Investec Asset Management chief strategist Max King said fund managers banking on a bear market rally could suffer losses that will take as long as 10 years to repair.<br /><br />Brewin Dolphin strategist Mike Lenhoff said: &ldquo;Once markets move above critical levels &ndash; such as hitting 4,500 points &ndash; this tends to bring in a whole new wave of momentum players and it gets increasingly difficult to clamber on board.&rdquo;<br /><br />Bear market rallies occur when falling markets show promising gains before tumbling beneath earlier lows.