Our four fund buyers name their most recent buys and sells, and share their outlook for the months ahead.
Inflation, higher interest rates, and Russia’s war in Ukraine continue to haunt global equity markets. And yet, there are reasons to look beyond the bear market. As always, our pros have a range of views on how to position themselves in this economic environment.
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.
David Hambidge, investment director of multi-asset at Premier Miton Investors
Reason to be bullish: following a dire 2022 for risk assets, valuations are now looking more attractive. This is particularly the case in higher-quality bonds, which have just suffered their worst year in decades and now offer a much more attractive level of income.
Reason to be bearish: interest rates are going to continue to rise in the first half of 2023, while global economic growth will be lower than last year. Corporate earnings and margins will also likely come under pressure although this is priced into equity valuations to a certain extent.
Bought: Hambidge recently added FTF ClearBridge Global Infrastructure Income to his multi-manager income portfolios. The fund aims to return 5.5% above the OECD G7 CPI Inflation index over the long term. This is an objective, Hambidge says that “is well suited to listed infrastructure income, although it may mean the strategy underperforms in strongly rising equity markets”.
The team aim to apply a private market type approach to listed infrastructure equity markets. Hambidge says the management team’s “stock valuation framework has a high level of ESG integration, particularly with respect to climate transition”.
Increased: he increased his shares of the London-listed commercial property trust LXI REIT (LSE:LXI), and also added to his position following the recent fall in the share price. “The shares offer an attractive yield on long-dated property assets,” says Hambidge.
Reduced: UK equities have significantly outperformed global shares over the last 12 months. Hambidge has reduced his holding in Man GLG Income, which has comfortably outperformed the UK stock market. “While we have maintained a sizeable holding in the fund, we have taken advantage of the recent strong performance to lock in some profits,” he says.
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Tihana Ibrahimpasic, portfolio manager, multi-asset team at Janus Henderson Investors
Reason to be bullish: Chinese re-opening is seen as a growth positive. In addition, mild winter weather in Europe has seen gas prices drop to levels last seen prior to the start of the Ukraine war and with oil prices also dropping, this has helped inflation data to surprise to the downside. A continuation of this dynamic could be positive for the economy and markets.
Reason to be bearish: core prices indicate that inflation remains well above policy targets, even if the news on headline inflation looks to be much more encouraging. With labour markets remaining tight, there is ongoing anxiety that pressure on wages could continue to be a factor that drives up prices in the quarters to come.
Bought: in the middle of 2022, Ibrahimpasic bought the FSSA All China fund across several of her flagship funds. It is a high conviction strategy that picks companies with sound business models and high-quality management. The managers focus on capital preservation and downside protection in structuring a diversified, low turnover portfolio.
“The overarching investment theme for the strategy is the Chinese consumer consumption growth, industrial automation and smart tech,” says Ibrahimpasic.
Relative to its index, the MSCI China All Shares, she notes, that the fund is generally style-neutral, and tends to bring moderately positive exposure to quality, low volatility and ESG factors.
Held: she has continued to hold BioPharma Credit (LSE:BPCR), a UK-based investment trust. This is held within her alternative asset allocation. It predominantly invests in debt assets whereby cash flows are linked to life sciences industry.
Besides being useful in her income portfolios (yielding 7.3%), Ibrahimpasic notes that the investment trust acts as a solid diversifier relative to traditional asset classes. “We have maintained our position throughout the year, occasionally making small tactical adjustments due to a very strong performance of the holding,” she says.
Sold: Stewart Inv Asia Pacific Sustainability in favour of the FSSA All China fund. “While we retain our conviction in the Stewart team and their stock-picking capability as well as their best-in-class sustainability framework, we took profits on a position which benefited from the quality/low volatility factors and a limited China exposure,” she says.
Peter Hewitt, fund manager of CT Global Managed Portfolio Trust
Reason to be bullish: it is possible inflation in the US has already peaked. It may also be the case that is close to peaking in the UK and Europe. More importantly, interest rates, which have risen rapidly in the US, UK and Europe throughout 2022 are close to their peak. This removes a headwind for equities, and even though the UK will be in a recession, markets tend to look ahead 12 months and could move ahead well before a recovery is apparent.
Reason to be bearish: faced with the onset of recession, analysts will likely be cutting profits and earnings estimates for individual companies and the market for 2023 as year-end corporate results are announced. This could reinforce adverse sentiment, which will be challenging for equity markets, particularly in the first half of this year.
Bought: Hewitt has bought the Apax Global Alpha (LSE:APAX) fund. Originally a fund for partners of Apax, it brought in outside shareholders via a listing in 2015 and is invested in Apax buyout funds of differing vintages.
“There is no venture capital and typically the fund prefers quality-growth companies which are proven businesses rather than rapid-growth, new companies,” says Hewitt.
Two-thirds of the portfolio is in North America, while most of the rest is in Europe and the UK. The fund pays out 5% of Net Asset Value (NAV) each year as a dividend. Rising interest rates and bond yields have caused the shares to move to a wide discount, currently around 27%.
He adds: “This more than takes into account any potential fall in asset value however if the coming recession is not severe, then the shares represent an interesting opportunity.”
Increased: he has increased his position in Oakley Capital (LSE:OCI), which Hewitt says is “one of the best-performing private equity trusts over the short and long term”. It specialises in investing in founder-run businesses in one of three sectors, technology, education and consumer, in Europe and the UK.
The portfolio is very conservatively valued and the balance sheet is not stretched, according to Hewitt. “With a number of realisations possible in the coming year, the current discount of 36% represents outstanding value for a proven management team,” he says.
Sold: he sold Princess Private Equity (LSE:PEY), an investment trust focused globally on medium-sized private companies. Its performance “has been tailing off over the past 12 months and had begun to lag the private equity peer group”, says Hewitt.
However, it was the decision not to pay an interim dividend that caught investors by surprise. Hewitt said: “Apparently, their foreign exchange hedges went against them in September and required a significant amount of unanticipated extra collateral.
“In addition, the trust had been making new investments well in excess of realisations such that they did not have enough cash to pay the dividend. This did not reflect well on [the] partners group or the board, who should have been much more aware of what was happening.”
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Vincent Ropers, co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income
Reason to be bullish: we start the new year with inflation likely to have peaked and recession probably relatively mild due to strong corporate balance sheets and labour markets – a very well-anticipated factor. Moreover, the reopening in China, while likely to be bumpy, will ultimately prove a boost for the global economy.
Reason to be bearish: the environment remains very uncertain though with substantial geopolitical and monetary policies risks, which are likely to continue generating volatility.
Bought: Ropers added that a small position in the KLS Corinium Emerging Markets Equity fund, a relatively new emerging markets fund. “The asset class is looking attractively valued and could benefit from a lower US dollar going forward,” he says.
Increased: after the volatility created by the mini-budget, Ropers continued to add to his exposure to fixed income markets via the Vontobel TwentyFour Strategic Income. “The fund is well positioned to take advantage of very attractive bond yields without adding too much credit risk or duration,” he says.
Ropers also likes the fund’s bias towards bank debt, as well as its exposure to floating rates (where coupons move in line with base interest rates).
Trimmed: Ropers took some profits in Caledonia Investments (LSE:CLDN) in November after the trust’s discount moved from around 40% to 20% over a short time period.
“While the company reported strong half-year results, the move in the share price outweighed the results dramatically and illustrates how powerful the valuation pull can be once extreme levels are reached,” he says.
The position was trimmed on the back of that move in line with Ropers’ valuation discipline. “But we continue to believe its underlying assets of listed and private companies remain well positioned for the upcoming months with the latter displaying strong operational performance despite challenging times,” he says.
Therefore, the trust remains a position in his portfolio.
The four multi-manager panellists
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.
Peter Hewitt is fund manager of the CT Global Managed Portfolio Trust, where he specialises in investment trusts.
Tihana Ibrahimpasic is a portfolio manager on the multi-asset team at Janus Henderson Investors. Prior to taking on this role in 2021 she was a research analyst in the team from 2018.
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.
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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