Five fund experts tell us what they're buying and selling right now

Market turbulence is causing some investment managers to rethink holdings. A handful of them explain to Marina Gerner their new stakes, increased exposure and recent sales.   

More than 10 years after the 2007 financial crisis, the world seems riven with uncertainty once again. There is a fresh announcement every day on the trade war between the US and China or on the stumbling Brexit negotiations between the UK and Europe.

In October, there was a sudden bout of volatility in global markets and the S&P 500 index plunged by about 10% on the back of concerns about rising interest rates. Meanwhile, a strong dollar has put pressure on emerging markets whose debt is denominated in the currency. The recent turbulence has raised many questions, which is why our experts are bracing for a volatile period, where diversification is paramount and defensive positioning key.

That said, there are many ways to skin a cat. For some, absolute return strategies come with the promise of positive returns in times of market stress. Others focus on income funds or funds whose fortunes are set to turn for the better. Some of our experts are cautious about the UK, while others have used the current weakness as an opportunity to buy UK funds. Similarly, some remain pessimistic on emerging markets, while others see opportunity there.

Rather than building their portfolios by investing in individual stocks or bonds, our experts invest largely in investment funds and trusts. This puts them in an excellent position to identify strong themes and winning managers. We have asked them to talk about a new fund they have recently bought, another where they are adding to their holding and a third where they have reduced their position.

Past performance is not a guide to future performance

Jordan Sriharan

Thomas Miller Investments

New Buy - Comgest Asia Paci­fic ex Japan is a new position for Jordan Sriharan. He likes this fund because of its "unconstrained, concentrated, high-conviction portfolios".

The fund combines a search for quality, growth and value into its investment process. Sriharan says:

"[At this point in the economic cycle], we think this fund will provide a layer of downside protection in an equity region where volatility is often materially higher."

Increased - Fidelity Global Technology is a sector-specific fund. The tech sector has led equity markets lower recently, and Sriharan says "the retracement in the fund price has provided an opportunity to increase our position". He decided to invest in the fund because of its underweight to the FAANGs (Facebook, Amazon, Apple, Netflix and Google), which he says "complements the wider exposure of our global equity managers".

He adds:

"The increase in our exposure [to this fund] has some of the more expensive tech names."

Trimmed - The L&G Property fund has performed well over the past few years. Sriharan says that, unlike many other UK commercial property funds, this fund has maintained its credibility by not 'gating' withdrawals in the immediate aftermath of the Brexit vote. Given its "strong performance in the face of weaker global equity and bond pricing over the past year, it was prudent to trim some exposure," he says. His outlook for UK commercial property "remains mixed", but despite the trim, this fund "is still a high-conviction pick".

Peter Walls

Unicorn Mastertrust

New Buy - UK equities remain unloved, especially companies that derive the bulk of their earnings from the domestic market. Peter Walls says:

"Valuations here seem to be pricing in a recession brought on by a possible no-deal [Brexit] outcome."

Time will tell if such pessimism is justified, but he believes the UK market is attractive and he has recently taken a holding in Keystone Investment Trust. Manager James Goldstone is a contrarian stockpicker focusing on value. "His style has demonstrably been out of favour," says Walls, and this has contributed to the discount, which stood at 13.4% on 9 November.

Increased - "With further interest rate rises anticipated in the US, the outlook for the banking sector continues to improve as margins widen," says Walls. The recent earnings season provided plenty of encouragement for him to add to his holding in Polar Capital Global Financials Trust. This has a weighting to the banking sector of 65%, of which 70% is in US banks.

He says:

"I see limited discount downside risk in the share price, as the trust has a fixed life and will wind up in May 2020."

Trimmed - Walls says he reduced his exposure to Genesis Emerging Markets by more than 10% "as a result of the recent tender offer, which returned capital at a 3.5% discount to net asset value, compared with the prevailing double-digit discount in the market".

He adds:

"Our participation in the tender should not be construed as taking a negative view on the trust. We continue to believe the managers’ focus on value and quality will serve investors well in future."

David Hambidge

Premier Asset Management

New Buy -  David Hambidge has been buying UK equities on the dips, because "they remain deeply out of favour with investors and continue to produce an attractive income". His recent fund purchases include Franklin UK Equity Income and Man GLG UK Income.

Increased - Emerging markets have been weak this year. "We have taken advantage of this weakness to take a small stake in Mobius Investment Trust, which is run by renowned investor Mark Mobius and his highly regarded team," says Hambidge. The portfolio has a bias to small and medium-sized firms trading on attractive valuations. "We think the trust will have plenty of choice in the current environment."

Trimmed - "Although we don't expect UK interest rates in the UK to increase very much in the current cycle, we think even a modest increase could damage funds that hold higher-yielding, longer-dated fixed-income securities," says Hambidge. He has therefore reduced his exposure to this area by taking profits from the Henderson Preference & Bond fund.

Ayesha Akbar

Fidelity Investments

New Buy - "The ability to be flexible is attractive at this uncertain time," says Ayesha Akbar. "I think Richard Woolnough's M&G Optimal Income Fund provides [bond] investors with this capability." The manager seeks to build a portfolio providing "the optimal income stream". The fund can invest across the entire fixed-income space, from government bonds to investment-grade and high-yield corporate bonds. It can also invest up to 20% of its assets in company shares if the manager believes equity offers better opportunities than debt.

Increased - An absolute return fund can, in theory, offer positive returns in times of market stress. "Jupiter Absolute Return Fund could fit the bill here, given its contrarian positioning ," says Akbar. While the bulk of the portfolio's investments are long and short positions in stocks, the fund can use other instruments such as hedges, stock options and gold, “which can help insulate the portfolio from high volatility".

Trimmed -  Given the Brexit uncertainty, Akbar remains “quite cautious on UK markets”. She says that, as a result, she will continue to limit her exposure to UK equity managers. "Liontrust UK Growth has performed strongly in recent years, reflecting my top-down views on the UK, but I am not looking to increase my allocation to UK equities at this time."

Peter Hewitt

F&C Investments

New Buy - Aurora Investment Trust is a recent purchase. Peter Hewitt says its strong performance is due to it having just 15 to 20 holdings, with the top five typically accounting for between 45% and 60%. "The managers and analysts have never used third-party research," he says. Instead, they do their own due diligence and focus "only on market leaders with pricing power, predictability and transparency in their business model".

Increased - Hewitt has increased his position in BH Macro. The trust tries to take advantage of movements in interest rates, forex and bond markets. He says:

"Management is seeing more opportunities, and is able to construct trades with attractive pricing and return outcomes." 

He adds that fees are much lower now than previously, and that the trust is currently trading on a discount of 7%.

Sold - Genesis Emerging Markets Fund was a recent disposal. Although, after a period of poor performance, "emerging markets in general are beginning to offer value, they are likely to remain under pressure from the threat of an escalation in trade wars". A surging dollar is also a problem for countries and firms whose debt is denominated in the currency. Hewitt says:

"[That's why] the next six to 12 months could be quite uncomfortable for funds invested in this sector."

Multi-manager biographies

Jordan Sriharan

Sriharan is head of the collectives research team and a senior portfolio manager at Thomas Miller Investments. Prior to working at the firm, he worked at Mercer, Fidelity Investments and the Wellcome Trust.

Peter Walls

Walls manages Unicorn Mastertrust, an open-ended fund of investment trusts. Before he joined the Unicorn investment house in 2001, he was an investment trust analyst and commentator for nearly 20 years.

David Hambidge

Hambidge is head of multi-asset investment at Premier Asset Management. He helped set up Premier's fund-of-funds operation in 1995 and is regarded as one of the UK's most experienced multi-managers.

Ayesha Akbar

Akbar is a portfolio manager in Fidelity's multi-manager team. Prior to joining Fidelity, she worked at Barclays Wealth, where she was instrumental in helping establish the ­firm's multi-manager business.

Peter Hewitt

Hewitt is a director and investment manager with the F&C global equities team, and fund manager of the F&C Managed Portfolio Trust, where he specialises in investment trusts. He joined the ­firm in 1983.

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