Gervais Williams: how will we get out of a recession?

Gervais WilliamsGervais Williams, fund manager, Miton

Miton fund manager Gervais Williams is worried about recession. The recent inversion of the yield curve in the US (where long-term interest rates are lower than short-term ones) has historically predicted a downturn, and the problem is that central banks today don’t have much room to cut interest rates. As Williams tells Jennifer Hill of Citywire’s Investment Trust Insider: “We have recessions from time to time, but how do we get out of it this time?”

As a result, he has been taking out “downside protection” in the form of put options, which will pay out if the FTSE 100 slides. “They cost money, but if things get really nasty it’s nice to have an asset that goes up.”

Williams is, however, more relaxed about Brexit. “A chaotic Brexit isn’t very likely. There might be short-term queues on motorways or difficulty getting foodstuffs over the border…but we’ve seen this type of thing before.” Indeed, with his focus on small and micro-cap stocks, he sees it as a potential opportunity.

For one thing, UK stocks are far cheaper than their US counterparts. As a result, “there is an astonishingly attractive potential for the UK market to enjoy a period of outperformance over other markets”. He also expects to see plenty of takeovers after Brexit has been resolved, particularly among small companies with overseas earnings, as caution over the UK economy has left small stocks looking particularly cheap. “I don’t ever remember seeing such a disparity between the majors and the micro caps.”