Our panel of expert fund investors detail recent fund and investment trust trading activity.
With the success of the Covid-19 vaccine, and the easing of lockdown, economies are slowly returning back to normal. 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. For the second quarter of 2021, the panellists have been tapping into the digital infrastructure theme.
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Peter Hewitt, fund manager of BMO Managed Portfolio Trust
Reason to be bullish: some very substantial upgrades to estimated growth are being seen for the UK, US and, to a lesser extent, European economies for both this year and next. This is also being accompanied by significant increases in estimates for corporate profits and earnings as companies and sectors worst affected by the pandemic return to profitability.
Reason to be bearish: bond yields are rising, mainly in the US but also in other developed countries caused by fears of inflation picking up due to the massive stimulus package in the US. Should this continue in too rapid a fashion, it could threaten to derail progress in equity markets.
Bought: Hewitt recently purchased Digital 9 Infrastructure (LSE:DGI9), which had a successful IPO in March raising £300 million. Managed by the Triple Point investment team, who already manage two other investment companies in the alternatives sector, D9 aims to invest in digital infrastructure assets including subsea fibre, data centres, terrestrial fibre, tower infrastructure and small cell networks (5G).
The trust acquired £160 million Aqua Comms, which owns and operates trans-Atlantic subsea fibre systems. Such systems represent the backbone of the internet. “They have a pipeline of £200 million of other opportunities,” says Hewitt. The company will pay a fully cash covered 6% dividend in its first year and is targeting a 10% total return over the long term.
Increased: the holding in Aurora investment trust (LSE:ARR) was increased. Aurora has a highly focused portfolio of around 15 to 20 UK holdings, and is run by Phoenix Asset Management. “Although returns can be volatile, they have been very successful over the long run,” says Hewitt. Currently, the portfolio is geared to benefit from an opening up of the economy with large holdings in Frasers Group (LSE:FRAS), budget airlines and housebuilders.
Sold: the holding in Troy Income & Growth (LSE:TIGT) was sold. “Rather disappointingly Troy forecast a 30% cut to their dividend over 2021 at a time when others in the sector are starting to raise their dividends,” says Hewitt. In addition, “the portfolio has been moved to a more defensive, less cyclical stance just at a time when more cyclical value-oriented companies are performing”. This has resulted in some highly valued companies becoming part of the portfolio. Having issued a lot of shares in recent years, it has now had to start re-purchasing them.
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David Hambidge, head of multi-asset investment at Premier Miton Investors
Reason to be bullish: monetary and fiscal stimulus are likely to be in abundance even as economies start to return to some kind of normal following the vaccine roll-out. This should be supportive for stock prices.
Reason to be bearish: the recent rise in government bond yields is putting some stocks under pressure and particularly those that have benefited from the pandemic and ultra-low yields over the last year or so.
Bought: Hambidge has taken out a new position in Primary Health Properties (LSE:PHP), a specialist UK real estate investment trust (REIT) which invests in best-in-class healthcare facilities throughout the UK and Ireland. “The majority of its assets are GP surgeries with rents funded by a government body over a long lease period, making for a secure and stable income stream,” he says.
Increased: the position in Montanaro UK Equity Income has been increased, on the grounds that UK equities still appear to represent decent value. “We have owned this fund for a number of years, and it has delivered good long-term results,” he says. While 2020 was challenging for all UK equity income funds following the steep decline in dividend payments, Hambidge expects this fund, which invests in the UK mid- and small-cap space, to continue its recovery.
Reduced: to fund new investments, Hambidge has taken profits in a number of their corporate bond holdings, including the complete disposal of TwentyFour Select Monthly Income (LSE:SMIF) following a strong recovery in the share price over the last 12 months.
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Vincent Ropers, co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income
Reason to be bullish: the remarkable success of vaccines so far and the (somewhat surprising) speed at which some countries such as the UK and the US have demonstrated they can be rolled out, lead us to contemplate a strong economic recovery in the second half of the year.
Reason to be bearish: this won’t be uniform, however, as vaccine distribution issues and political tensions will likely persist for the near future. There is no place for complacency.
Bought: Ropers initiated a new position in the GCP Infrastructure (LSE:GCP) investment trust earlier this year. “We like the infrastructure theme but think that the valuations in the sector don’t currently leave much room for error,” he says. The GCP Infrastructure trust, however, is managed conservatively, still trades more than 20% below its January 2020 level, and gives an attractive yield of 6.8%.
Increased: the LF Ruffer Equity & General fund was increased this quarter. “Its manager (Alex Grispos) is an excellent global stock-picker looking forensically for ideas away from the well-trodden paths,” says Ropers. The manager’s cautious long-term approach has served him well over the years and Ropers feels encouraged by the increasing number of attractive opportunities the manager has recently invested in.
Reduced: after a strong period of performance, Ropers took some profits in a number of holdings, including mining, renewables, technology and Asia. Another example is the Fidelity China Special Situations (LSE:FCSS) trust, which has been in fine form since the start of 2020, helped by the resilience of the Chinese economy in the face of the pandemic. “Now that a strong recovery is looking more likely in other parts of the world too, we would rather increase our exposure there,” he says.
John Husselbee, head of multi-asset at Liontrust
Reason to be bullish: equity valuations remain attractive outside the US, with the UK particularly striking amid the reflation trade, with plenty of cyclical upside and structural overweights to sectors such as financials, energy and materials, which have been performing well so far in 2021.
Reason to be bearish: inflation fears continue to linger despite central bank assurances on ongoing stimulus and lower-for-longer interest rates.
Bought: Husselbee recently purchased Cordiant Digital Infrastructure (LSE:CORD) in his Liontrust MA Diversified Real Assets fund. The investment trust listed in February 2021, raising £370 million. The managers invest in European mid-market core digital infrastructure assets, with a focus on data centres, mobile telecoms/broadcast towers and fibre-optic network assets. “Digital infrastructure has desirable characteristics such as long-term contracted cashflows with escalators linked to inflation and limited obsolescence risk,” he says. The trust gives an opportunity to access an underserved asset class in the UK listed space with non-cyclical properties.
Increased: with value performing well since late last year, Husselbee increased his position in JOHCM UK Dynamic. Manager Alex Savvides is currently seeing ample opportunities in the UK owing to Brexit concerns abating and under-ownership of the market. Husselbee adds: “As would be expected, his contrarian style has been rewarded in the strong value rally since vaccines were announced in the autumn of 2020.”
Reduced: “Gold plays a strategic role in some of our funds as a diversifier to more economically sensitive areas such as property and commodities,” he says. This was clear in 2020 during the Covid-19 crisis, when he increased his allocation via the iShares Physical Gold ETC (LSE:IGLN). “We have subsequently taken profits and trimmed the position as we became more positive on prospects for the global economy owing to successful vaccine roll-outs and ongoing fiscal and monetary support,” he says.
The four multi-manager panellists
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.
John Husselbee is head of multi-asset at Liontrust. He manages a range of multi-asset funds, including growth and income portfolios.
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.
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.
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