The four fund buyers have moved to focus on diversifying their portfolios. Marina Gener runs through the funds and trusts they have snapped up.
While the UK economy has bounced back to pre-Covid levels, inflation has been rising and Omicron continues to loom large at the start of 2022. Every quarter, our multi-manager panel participants reveal their current bull and bear points. They discuss the new funds and investment trusts they have purchased, those they have increased their holdings in and the ones they have trimmed or sold.
This quarter, our managers have moved to focus on diversifying their portfolios through investments in sectors including biotech, sustainable energy, and global equity.
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Vincent Ropers, co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income
Reason to be bullish: fiscal and monetary policies will remain extremely accommodative at a time when private consumption and business investments will continue playing catch-up. M&A and buybacks are also likely to continue supporting the market as companies have accumulated cash since the start of the crisis and will feel pressure to put that cash to work.
Reason to be bearish: bar a radical worsening of the Covid situation, which would force stricter lockdowns, the biggest concern for the months ahead will remain inflation and how central banks react to it. If they prove too aggressive at combatting inflation, this would be a source of volatility for risk assets, but if they are too lenient, their credibility might be questioned.
Bought: Ropers recently added a new position in the International Biotechnology Trust (LSE:IBT). “Having been prevented from investing in vaccine manufacturers to avoid conflicts of interest when one of the trust managers took the lead role of the UK Vaccine Taskforce, the trust has underperformed the sector since the start of the pandemic,” says Ropers. Those investment restrictions are coming to an end. This coupled with the team’s multi-cap approach is a strong advantage in Ropers’ opinion. While being a growth strategy, the trust pays a 4% dividend yield in the biotechnology space and Ropers added to his position at a wide discount of around 8%. The discount has since narrowed, and is around 1%.
Increased: he increased his position in the BlackRock World Mining Trust (LSE:BRWM) in December at a time when the discount was abnormally wide in the recent context. He says this trust gives him exposure to beneficiaries of rising inflation in the short to medium term. “The sector struggled since summer 2021, mainly because of a dramatic reduction of steel production in China but there are signs that the Chinese authorities are looking to loosen recent restrictions,” he adds. Meanwhile, the broad mining sector remains strongly capitalised and should benefit from hard-to-resolve supply/demand imbalances. Finally, miners’ valuations have stayed attractive.
Trimmed: Ropers trimmed his position in the Mobius Investment Trust (LSE:MMIT) after a strong period of performance. The trust was up 42% in 2021, while the broad MSCI Global Emerging Markets Index was flat, illustrating how much value can be added from active management. “We continue to like the team’s strategy of finding small companies where they can help management make environmental, social and governance (ESG) improvements to unlock performance,” he says. He remains invested in the trust, albeit in smaller size than last quarter.
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Peter Hewitt, fund manager of BMO Managed Portfolio Trust
Reason to be bullish: economies generally have entered 2022 growing strongly. This includes the UK where despite some restrictions has both full employment and rising wages. This will feed through to continued strong profits, earnings and dividend growth from the corporate sector.
Reason to be bearish: the direction of travel has changed with regard to interest rates and with inflation looking more “sustained” than “transitory” they are likely to move steadily upwards, albeit from historically low levels. This means raised volatility in equity markets which may struggle to achieve positive returns in this environment.
Bought: Hewitt recently purchased the Polar Capital Global Financials (LSE:PCFT) trust. “This trust is run by the experienced and well-resourced team at Polar Capital and has a mandate to invest in financial companies globally,” he says. Nearly two-thirds of the portfolio is invested in banks (with very little in the UK), which are a clear beneficiary of rising interest rates which eases pressure on margins with substantial benefits to bank profitability. “Loan growth is robust and banks balance sheets have never been stronger,” says Hewitt, adding that 2022 could be a year when the unloved banking sector produces good returns.
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Increased: he increased his holding in Secure Income REIT (LSE:SIR), which he says, “had a good recovery in 2021 but could well have an even better 2022”. It could be viewed as a real beneficiary of the UK economy moving back towards normality and of consumer spending in the UK. Among its holdings are the property assets of Merlin Entertainments, the owner of Alton Towers and Thorpe Park. The trust has just signed an extension to the lease to 55 years on favourable terms. “Analyst forecasts are cautious, but asset growth could easily be better than expected,” notes Hewitt. In addition, the management team own over £100 million of stock so interests are firmly aligned.
Reduced: the long-term attraction of investment companies exposed to technology remain, however over the next couple of years with inflation and interest rates on the rise this is a headwind for the highly valued sector. For this reason, Hewitt has reduced holdings in some well-known names that have performed strongly, including Scottish Mortgage (LSE:SMT), Polar Capital Technology Trust (LSE:PCT) and Allianz Technology Trust (LSE:ATT). However, he says: “It should be noted that these trusts give exposure to genuine secular growth companies, which is where returns many times the book cost can be made so it important to maintain holdings in the area”.
David Hambidge, head of multi-asset investment at Premier Miton Investors
Reason to be bullish: share price gains in 2021 were driven more by higher corporate profits rather than a re-rating of the price/earnings ratio. Profits can be expected to improve further this year albeit not at the same rate as the last 12 months.
Reason to be bearish: ultra-loose monetary policy has resulted in substantial asset price inflation since the 2008 financial crisis. However, monetary conditions are now starting to tighten in an attempt to control inflation. If interest rates rise more than the market expects, this may well be negative for equities and almost certainly for much of the bond market.
Bought: Hambidge recently purchased Atrato Onsite Energy (LSE:ROOF) at launch, which has the primary focus of developing rooftop solar provision for large commercial operational sites such as supermarkets, warehouses and industrial units, whilst providing a tech gateway for up to 30% for other clean energy technologies. Once deployed and operational, the fund will target yearly returns of 8% 10%, with a progressive yearly dividend target starting at 5%. “The issue was significantly oversubscribed resulting in the shares currently trading at a large premium,” says Hambidge. However, he notes that once the initial proceeds are deployed the company is likely to raise additional capital, which will give the opportunity for new investors to get on board.
Increased: following its recent decision to raise additional capital, Hambidge has increased his position in Assura (LSE:AGR), a London-listed fund that invests in the primary healthcare space. The shares have been quite weak of late but with a largely government backed yield of over 4% and a growing dividend. He says: “We believe the shares represent good value at the current price of around 70p.”
Reduced: after a very strong period of performance, he reduced his exposure to UK small caps, having taken profits from VT Teviot UK Smaller Companies. “The fund has a fairly low yield so the bulk of the profit taking has been from our income mandates although we have maintained our holding in other funds,” he says.
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John Husselbee, head of multi-asset at Liontrust
Reason to be bullish: tailwinds are in place for a positive year ahead, provided central banks don’t make any policy errors.
Reason to be bearish: we remain positive on prospects for 2022 overall but would highlight that 2021 only saw one 5% correction (in September). The fact these have historically occurred three times a year on average suggests a pause for breath could soon be due.
Bought: over the quarter, Husselbee has purchased HSBC Asia Pacific Index to add greater diversity to the manager mix in his passive funds. “Across our multi-asset funds and portfolios, we remain positive on risk assets entering the new year and continue to be bullish on the reflation trade that looks to be gathering pace again after a summer lull,” he says. His goal is to prepare rather than react and this view plays into three long-term calls: global ex-US equities are more attractive than the US, small caps should outperform large, and value should outstrip growth – all running contrary to what happened for most of the 2010s.
Trimmed: December saw value funds performing particularly well, at the expense of quality and growth, with stocks in support services, construction materials and banks driving gains. This was reflected in funds including JOHCM UK Equity Income being the strongest contributors to performance. “We therefore decided to take some profits from JO Hambro UK Equity Income and reinvest them into some of our other existing holdings,” says Husselbee.
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The four multi-manager panellists
Vincent Ropers is a portfolio manager at Wise Funds, responsible for multi-asset strategies, using value and fundamental investment styles. He is co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income.
Peter Hewitt is a director and investment manager with the BMO global equities team, and fund manager of the BMO Managed Portfolio Trust, where he specialises in investment trusts.
David Hambidge is head of multi-asset investment at Premier Miton Investors. He helped set up the fund-of-funds operation in 1995 and is regarded as one of the UK’s most experienced multi-managers.
John Husselbee is head of multi-asset at Liontrust. He manages a range of multi-asset funds, including growth and income portfolios.
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
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