Interactive Investor

Funds and trusts four professionals are buying and selling: Q3 2022

18th July 2022 11:50

Marina Gerner from interactive investor

Our four fund buyers name their most recent buys and sells, and share their outlook for the months ahead. 

Global markets are feeling the heat amid Russia’s ongoing invasion of Ukraine, political turmoil in Italy, and rising inflation, with the FTSE 100 down by 4.9% since the start of the year.

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, the four professional investors have been adding diversification to their portfolios through investments in real estate investment trusts (REITs), biotechnology and energy storage.

Peter Hewitt, fund manager of CT Global Managed Portfolio Trust

Reason to be bullish: valuations have come back quite some way so far this year. While they could retreat further, many global equity markets have declined by 20% or more and are beginning to price in slower growth or recession next year.

Reason to be bearish: although valuations have retreated this year, they have done on the assumption that corporate earnings growth estimates are unchanged. The next stage in this economic cycle may well be earnings estimates for many companies and sectors being cut. This could cause further falls in equity markets.

Bought: Hewitt recently added a new position with Urban Logistics REIT (LSE:SHED). This real estate investment trust (REIT) listed on the alternative investment market (AIM) in 2016. It today has a market value of £760 million,

Hewitt points out: “It invests in mid-sized logistics buildings, which are focused on last-mile delivery operators. Assets are located near to key urban areas and are single let to tenants. They are a vital part of the supply chain to homes and businesses and demand for such property far exceeds supply.”

Tenants are typically specialist logistics companies or large corporates, no fashion retailers. Amazon is not in the top 10 tenants. Recent results for the year to 31 March had its net asset value (NAV) growing at 24%. Like-for-like rents grew 16%, and with 22% of the portfolio subject to rent review in the next 12 months, further rental income growth can be anticipated. The UK is a fast adopter of e-commerce and Urban Logistics REIT is a beneficiary of this trend and well placed in an inflationary environment.

Urban Logistics can be picked up on a 16% discount to NAV. Its dividend yield is 4.5%.

Increased: Hewitt increased his position in Murray International (LSE:MYI), a member of interactive investor’s Super 60 list. “This trust has enjoyed a renaissance in its performance over the past year due in no small part to its adherence to a “value” investment style and rigorous due diligence with a particular focus on cash flow of underlying holdings,” he says.

The global trust has a significant weighting to Asia-Pacific and emerging markets, which have served it well. It yields 4.4%, higher than most other global funds that pay an income.

Reduced: Hewitt has reduced his holdings in the technology and high-growth sector, in particular Allianz Technology Trust (LSE:ATT), Baillie Gifford Japan (LSE:BGFD) and Impax Environmental Markets (LSE:IEM).

Growth companies are being negatively impacted by high inflation levels and interest rates moving higher.  

David Hambidge, investment director of multi-asset at Premier Miton Investors

Reason to be bullish: global equities and bonds have endured one of their worst first six months of a year for decades and as a result, much of the poor macro picture is priced in.

Reason to be bearish: corporate earnings will likely come under pressure during the second half of the year and into 2023, and equities will struggle to form a bottom until the outlook for the peak in interest rates becomes clearer.

New position: Hambidge and his team have taken advantage of a recent capital raising to take a position in Gresham House Energy Storage (LSE:GRID). Having launched in 2018, Gresham House Energy Storage is a UK-listed fund investing in utility scale battery storage projects in the UK and Ireland.

“The strategy is to own and operate battery storage assets that can generate multiple revenue streams from providing contractual capacity requirements and managing the volatility and spread within the wholesale energy markets,” says Hambidge.

The strategy provides diversified and recurring cash flow streams that have low dependency on the absolute level of wholesale power prices, or renewable subsidies. This helps to reduce carbon emissions and pollution by supplanting other sources of energy production within the UK energy mix.

The fund targets a return in excess of 8% per annum. Its dividend yield is 4.4%.  

Increased: UK equities have performed better (or less badly) so far this year than international equities, but this has not been the case with all UK funds. Hambidge notes that one fund that is having a tough time due to its bias to medium- and small-sized companies is Montanaro UK Income. The underperformance of so-called growth stocks has also been a headwind. “However, we like the managers and their process and with the falling price resulting in a higher yield, we have added to our position,” he says.

Reduced: Hambidge significantly cut his corporate bond exposure in early 2021, and reduced it further in the second quarter of this year having reduced his exposure to Pictet Strategic Credit.

“Although the fund has fallen in value this year, its relatively defensive characteristics has resulted in it outperforming the broader strategic bond universe,” he points out.

Vincent Ropers, co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income

Reason to be bearish: fighting inflation is now the first priority for central banks whose actions, in turn, risk triggering a recession.

Reason to be bullish: that said, we are entering a very atypical scenario that could see negative real GDP growth but positive nominal GDP growth. Such an environment, while tricky to navigate, should allow some companies to grow their earnings and thus present attractive investment opportunities.

New positions: “Unusually for us, we added three new positions in our portfolios last quarter thanks to attractive price dislocations,” says Ropers. The new funds he bought are Fidelity Special Values (LSE:FSV), TR Property (LSE:TRY) and Vontobel TwentyFour Strategic Income.

He says the latter might be the most significant from a signalling standpoint because he hasn’t owned traditional fixed income assets for years due to the low yields on display. “After this year’s poor performance and with yields now looking more attractive, we started building a position in the global fixed income markets (government and corporate bonds).”

The inflation risk is now largely priced in and government bonds should act as a useful diversifier in portfolios again as recession concerns grow. Meanwhile, fundamentals in corporate bonds remain strong and current valuations offer a good entry point.

Increased: after what remains a difficult period for the sector, Ropers continued to increase his allocation to biotechnology through both International Biotechnology (LSE:IBT) and Worldwide Healthcare (LSE:WWH). “Interest rates rises are undeniable headwinds for the sector but, with enterprise values now 70% below their 2021 peak and with a structural growth story intact, we continue to think it is a great buying opportunity,” he says. Moreover, at current levels, the biotech companies are ripe for acquisitions from larger healthcare players and offer some degree of inflation protection.

Reduced: Ropers took some profits in his utilities and infrastructure positions last quarter, namely Ecofin Global Utilities & Infrastructure (LSE:EGL) and GCP Infrastructure (LSE:GCP) after what proved a strong first half of the year, both for NAVs and share prices. “The combination of defensiveness and inflation protection is welcome in the current environment and those managers were rightfully rewarded,” he says.

Recycling profits is part of his investment discipline, but he retains large allocations in both holdings despite the trims.

Dean Cheeseman, portfolio manager, multi-asset team, Janus Henderson

Reason to be bullish: as we commence the second half of 2022, investor positioning (by some indicators) is suggesting a level of bearishness but we need to observe the opportunities and potential triggers in an environment where making the bearish case is at the forefront of investors’ thoughts. 

Historically, tightening interest rate cycles have culminated in recessions, but many of these were short and shallow slowdowns and the market may soon begin to commence pricing-in a recovery. 

Reasons to be bearish: the global inflation shock is reflected in higher yields in government bonds, wider spreads in credit markets and lower equity price-to-earnings ratios impacting equities, with investors having to endure double-digit drawdowns this year in stocks, corporate credit, emerging market debt, government bonds and gold.

The evidence suggests a significant slowdown can be expected as interest rate hikes compound the current squeeze on consumer real incomes, leading to a high risk of a recession next year.

Bought: Cheeseman recently purchased First Sentier All-China into the higher-risk portfolios. In 2021, China struggled due to Covid-led lockdowns and a disorderly governmental regulatory review of many industries, including internet-oriented technologies. “I believe that sentiment towards China is shifting,” says Cheeseman. “Lockdowns appear to be easing in Shanghai and the government has shifted its regulatory tone towards technology platform companies, which should result in China performing well against the rest of emerging markets and the Asia-Pacific.”

Increased: he increased his position in UK gilts as recessionary fears have risen. The trade was executed earlier in the second quarter via gilt futures, but can be replicated equally efficiently by buying a passive UK gilt ETF. 

He says: “Investor sentiment is being tested by the speed and scale of the interest hikes, and the ending of quantitative easing programmes and pivot towards quantitative tightening.”

Reduced: Cheeseman reduced his exposure to US equity large-cap at the end of the second quarter after tactically positioning for a countertrend rally, which did not materialise. The S&P 500 has fallen nearly 20% year-to-date. “The trade was executed via S&P 500 index futures but can be replicated equally efficiently by reducing current US equity exposure,” he says.

The four multi-manager panellists

Peter Hewitt is fund manager of the CT Global 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.

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

Dean Cheeseman is a portfolio manager on the multi-asset team at Janus Henderson Investors. Prior to joining the firm in 2017, he was a portfolio manager and member of the asset allocation committee from 2011 at Mercer. Before that, he was with F&C Asset Management from 2007 to 2010, finishing his tenure as head of fund of funds.

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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