Volatile markets can be a good opportunity to add to your existing holdings, strengthening your conviction, or pick up new investments on the cheap.
Fund flows reveal that private investors have been pouring billions of pounds into absolute return funds this year – despite the fact that not all of them have delivered on their signature promise. But what have the professional investors been buying?
Home-grown Yield: UK Equity Income
Data from Morningstar Direct reveals that top-rated fund of funds managers have adding UK equities, emerging markets and even gold to their portfolios. John Chatfeild-Roberts, manager of the Silver Rated Jupiter Merlin Balanced fund has added further shares in Evenlode Income fund to his portfolio. Evenlode now makes up 12% of the balanced fund thanks to a purchase of 28,800,000 new shares. In total Jupiter hold 104,000,000 Evenlode Income shares in the Merlin Balanced fund, with a market value of £179 million – around a fifth of the entire Evenlode fund.
Amanda Sillars, Chatfeild-Roberts’ co-manager, explained that the team first bought Evenlode Income in May 2014 and have built the position gradually since then.
“The team of four led by Hugh Yarrow and Ben Peters have been of the mindset that things will remain tough for a while: they have positioned the fund accordingly, investing in companies which may or may not be household names, but have a reputation for quality and sell products or services that people come back to buy time and time again,” said Sillars.
“The team are long term investors, recent dips in the market have been used by the managers to add a few favoured companies at cheaper valuations.”
Evenlode is up 15.6% year to date, compared to the FTSE 100 which is up 9.32%.
Opportunities in Europe and Emerging Markets
The Bronze Rated F&C Multi-Manager Navigator Progressive Fund has also added to its UK equities position, but opted for a growth strategy instead in the Silver Rated JOHCM UK Growth and the Old Mutual UK Specialist fund.
A position in the five-star Hermes Global Emerging Markets has also been increased, buying 109,000 to take the total exposure in the portfolio to 3%. The fund has delivered 21% year to date, thanks in part to a 12% stake in Latin America.
Rob Burdett, co-manager of the F&C fund said: “Emerging markets have been the best place to be this year, the fundamental risks remain the same as they ever have been – there are political concerns investing in emerging markets, but there are political risks in the West too. The developed world is propped up by central bank policy and has anaemic growth. We feel more comfortable holding emerging markets today than 2 years ago.”
He continued: “Hermes is a very good fund, but has had a short-term set back, so we have been adding on the dips.”
Burdett and his co-manager Gary Potter have also recently bought the Luxemburg-listed Memnon European fund, a new purchase of 14,600 shares making up 2% of the portfolio. This four-star fund has delivered a positive return of 12% so far this year and has a five-year annualised return of 16%.
“Post Brexit we cut our exposure to Europe, we felt the economic uncertainty had transferred to the continent. There are elections coming up in Holland, France, Germany and Austria – plus a terrible fortnight for terrorism gave us concerns about the macro bigger picture for Europe,” Burdett explained.
“Instead we leaned into the Memnon fund which is more bottom-up. They are stock-pickers; they do a lot of modelling on their stocks reducing the hundreds of stocks in Europe to a select list.”
Going for Gold
The managers of the Bronze Rated Schroder Multi-Manager Diversity fund have reduced its cash weighting and sold off shares in Europe and Japan to buy shares in BlackRock Gold & General. Buying 370,000 shares takes the total shares held to 3 million, which makes up 2.3% of the Schroder fund.
BlackRock Gold and General has been a volatile fund in recent years. With losses of 11.6% in 2012 and 48% in 2013, the fund, run by Evy Hambro, is up 123% year to date. The negative sentiment towards gold securities over the past few years has resulted in the fund’s assets under management falling to £1 billion at the end of February 2016 from £4 billion at the start of 2012, although it still remains one of the largest amongst its category peers.
Joe Le Jehan, part of the multi-manager team at Schroders said that the team started adding to their position in the BlackRock Gold and General fund in Autumn last year.
“Given the significant bear market that many of these companies had experienced from 2010, it looked like an attractive entry point at the time,” he explained. “However, we have been increasing the position in recent months. It fits with our thesis that many investors have taken a significantly skewed position for a deflationary backdrop – the secular stagnation argument being so widespread at the moment – and away from the more value areas of markets such as gold equity.
“In our eyes, inflation expectations are currently too low and any signs of inflation returning, however modest, should benefit some of these more value areas of markets that have lagged the search for stocks associated with safety, quality and income in recent years.”
