Our quarterly series asks four multi-managers to detail recent fund and investment trust trading activity.
While Covid-19 continues to wreak havoc, investors have the chance to go bargain-hunting to take advantage of potential mispriced opportunities.
At the start of every quarter, our multi-manager panellists reveal the funds and investment trusts they have purchased, increased their holdings in, and trimmed or sold. In addition, the panellists share their macroeconomic hopes and fears.
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Peter Hewitt, fund manager of BMO Managed Portfolio Trust
Reason to be bullish: substantial continued action from central banks in the form of quantitative easing is likely for some time yet and is very supportive of financial markets generally and equity markets in particular.
Reason to be bearish: rising unemployment in the second half of this year and the impact of a second wave of Covid-19 infections could cause a reappraisal of market prospects. Also, considerable uncertainty lies ahead with the US presidential election and Brexit negotiations.
New position: Hewitt recently purchased Baillie Gifford European Growth Trust (LSE:BGEU). At the end of last year, Baillie Gifford took over as manager of the previously named European Investment Trust, which had a sustained period of underperformance. The portfolio has been overhauled, with Baillie Gifford switching the strategy from a value to a growth-based style.
“The new approach is classic Baillie Gifford with little exposure to energy, telecoms or financials. In terms of where the trust invests, the portfolio has significant exposure to digital platforms, healthcare and technology,” says Hewitt.
In addition, almost 40% of the portfolio is in industrials. “These are not traditional cyclical companies, but specialist industrials with a focus on high-growth niche markets often with a large family ownership,” he says.
Increased: Hewitt has been increasing his holding in the Hipgnosis Songs Fund (LSE:SONG). He was initially drawn to the investment trust because of its 5% dividend yield, but now he sees that capital growth is its main attraction. According to recent full-year figures, he says the Net Asset Value (NAV) was around 10% ahead of estimates, driven by strong growth from streaming and active management of artist song catalogues. Looking ahead, Hewitt estimates that the share of royalties going to songwriters will gradually rise from about 10% to 15% per play/stream, which underpins strong prospects for revenue growth.
He adds that performance has suffered due to its value-based investment approach and high gearing levels. The value style led to substantial exposure to smaller companies in the construction, industrial, engineering, media and support service sectors, all of which have been badly affected by Covid-19.
John Husselbee, head of multi-asset at Liontrust
Reason to be bullish: in the UK, the economic recovery has been stronger than expected, with GDP expanding 6.6% in July. This was the third consecutive month of growth and with August expected to be positive, the country should exit recession this quarter, at least according to the technical definition.
Reason to be bearish: while the UK has recovered around half the output lost in the pandemic, GDP is still 11% lower than in February and there are growing concerns about a painful autumn and winter, with rising job losses, renewed restrictions in place on people meeting up and on the hospitality industry, and the Brexit situation once again falling into chaos.
New position: within our emerging-markets exposure, we have a tracker fund and a value offering from Artemis, and recently switched our growth selection from Stewart Investors Global Emerging Market Leaders to Legg Mason Martin Currie Global Emerging Markets Fund, says Husselbee. After holding the Stewart Investors fund for many years, he felt it was an opportune time to move to an out-and-out growth vehicle from Legg Mason. The fund has more than 30% of its assets in China, which Husselbee says, attests to its more “aggressive growth nature”.
Increased: Husselbee has switched the small-cap passive funds in his portfolios (see below) that were investing in the UK, US and Europe ex-UK into active funds, including Artemis US Smaller Companies. “We wanted to add US smaller companies exposure to our portfolios as we believe the small-cap premium is starting to re-emerge,” he says. Overall, he argues the price of active management is worth paying in small caps.
Sold: as mentioned above, Husselbee has switched out of small-cap passive funds including Dimensional UK Small Companies, Dimensional European Small Companies and Dimensional US Small Companies. Across his portfolios, he took the decision to switch from Dimensional small-cap passive funds to active funds, which “have been gaining momentum in the recovery since the March market lows”, he says.
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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 bullish scenario would be a quick resolution to the pandemic, most likely thanks to a vaccine, which would spur a strong recovery turbocharged by global authorities’ stimulus. One of the strongest asset classes in this case would be equities, particularly the cyclical sectors, which are currently trading at depressed valuations.
Reason to be bearish: the negative scenario would see a protracted pandemic, which is contained only through successive lockdowns, continuing to impact manufacturing processes and consumer habits. In this instance, bonds and growth equity sectors such as technology should continue to be supported, despite both of those being already expensive.
New position: Ropers recently established a new position in the Polar Capital Global Financials Trust (LSE:PCFT). “We are struck by the fact that investors seem to use an old playbook when looking at financials,” he says. The sector is in much stronger capital position than in the global financial crisis more than a decade ago, according to Ropers. The sector is trading on attractive absolute and relative valuations, as is this trust, which, “while not foolproof, should provide some downside protection”, he says.
Increased: he increased his position in Oakley Investment Trust (LSE:OCI). It is a private equity trust focused on digital consumption, education and technology, and media and telecommunications. Around 70% of the portfolio companies operate a subscription-based or recurring revenue business model, meaning they are more resilient to declines in customer demand. “These types of business models are potentially less vulnerable to disruptions caused by the pandemic compared with the broader economy,” he says. The trust trades at close to 30% discount to NAV, offering a potential attractive opportunity.
Sold: he sold his holding in the HG Capital Trust (LSE:HGT). This private equity trust invests in software and service businesses and it had been a continuous holding for the past 15 years. “The portfolio and the management team are both of tremendous quality but, as value-biased investors, we think that valuations are now extended, along with most tech-related assets,” says Ropers. However, he adds that he is confident this trust will be repurchased at some point once valuations start looking reasonable again.
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Simon Evan-Cook, co-manager of Premier Miton Investors’ multi-asset funds
Reason to be bullish: away from the market’s extremes, there are plenty of assets that can generate worthwhile investment returns for the next decade.
Reason to be bearish: stock markets are dominated by unattractively valued, risky-looking assets that may struggle to generate worthwhile returns in the coming years.
New position: Evan-Cook recently purchased the Legg Mason US Small-Cap Opportunity fund. It is only a modest position, and it only features in his most equity-heavy portfolio, but he says this is a deeper value fund that performs well coming out of bear markets. “We have been following it for a long time, looking for a suitably bleak point in general sentiment to invest, and we think we were handed that after the pandemic sell-off in spring.”
Increased: he decided to top up his position in the Polar Global Insurance fund. This fund, which as the same suggests specialises in the insurance industry, underperformed amid the Covid-19 sell-off, but this happened for what he believes were unjustified reasons. “Now this is a portfolio of attractively valued shares in high-quality businesses that are growing at double-digit rates,” he says.
Trimmed: Evan-Cook decided to trim back his position in Baillie Gifford European, but still remains invested. This fund has benefited from recent tailwinds in favour of growth investing, and while its prospects over 10 years look good, Evan-Cook says there is an increasing “risk of a pullback in growth stocks given the current fervour surrounding them”.
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.
Simon Evan-Cook is co-manager on Premier Miton Investors’ multi-asset funds, responsible for researching overseas equity fund sectors.
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, and 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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