What Dye needs is a stock market crash: Comment

Tony Dye, head of investment at Phillips & Drew Fund Management (PDFM), cannot be enjoying the present media focus on his investment strategy. He probably could have survived what has become caricatured as PDFM's "dash for cash" had this remained a private City matter. After all, in his time, Mr Dye has been one of the City's top performing fund managers. But with the glare of publicity now following his every movement, he seriously needs a stock market crash to vindicate his position. If the markets continue to move against him, the wolves will be at his door.

Nor will it just be his job which is under threat, if the rumours are correct. Mr Dye is a man who likes to back his judgement with his own personal wealth. According to colleagues, he personally has more than is sensible riding on a Wall Street crash.

As always, however, much has been distorted in the hype that surrounds this story. Fundamentally, there is nothing wrong with Mr Dye's thinking. Most London fund managers have come round to the view that equities are seriously overvalued. Nor is he entirely alone in having an abnormally large cash position. Even the mighty Pru has increased the proportion of its pension fund assets in cash to approaching 9 per cent. Mercury Asset Management and others have also been substantially reducing their exposure to UK equities in recent months. Where PDFM is out on a limb is in the size of its cash mountain. It is unusual for a manager of pension fund money to be liquid to the extent of any more than 7 per cent of assets; Mr Dye is 15 per cent liquid. Moreover, he has been in that position for quite some while now.

Fund managers don't get paid their quarter per cent just for the job of sticking their clients' money in the bank. Understandably, there is concern among PDFM clients, for to the extent that they have been put into cash, they have missed out on 14 per cent plus returns on equities so far this year. Mr Dye has courted controversy before in his investment approach, and usually been proved right in the end. While there's no doubt that PDFM has got its timing badly wrong in anticipating a market collapse, everything tells you that its strategy is fundamentally sound this time too. Equities are heading for a big correction. Only the timing and extent of it are in doubt. The last laugh could yet belong to Mr Dye.