Funds and trusts four pros are buying and selling: Q4 2024
Four fund buyers share their most recent buys and sells, and offer their outlook for the months ahead.
21st October 2024 11:31
by Lucy Loewenberg from interactive investor
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Growth in the UK economy has slowed and wage growth has fallen. At the same time, inflation is expected to fall too. But as always, there are opportunities to be found in all market conditions.
Our investors, who specialise in buying funds, have various opinions on positioning in the current 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.
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Peter Hewitt, fund manager of CT Global Managed Portfolio Trust
Reason to be bullish: the Bank of England has begun the rate-cutting cycle in the UK and is likely to continue over the next year. After tipping into a shallow recession earlier this year, the UK economy is strengthening, albeit modestly. This is positive for corporate profits of companies with a significant portion of revenues generated domestically.
Reason to be bearish: inflation in the UKremains higher than in other developed economies. If it were to re-accelerate, that would put at risk the trend towards lower interest rates, which would be negative for financial markets.
Bought: valuations of UK assets, especially those of UK medium and smaller companies, remain low both relative to other global markets and when compared to their own long-term valuations range.
The outlook for profits’ growth from this area of the UK equity market is improving, which is reflected in the high number of takeover deals. That’s why Hewitt has bought Henderson Smaller Companies (LSE:HSL).
He says it has “an excellent long-term performance record and is well placed to benefit from a recovery”. With an experienced management team, it is 14% geared, has a 3% dividend yield, and trades on an -11.6% discount to net asset value (NAV).
“With interest rates in the UK set to fall, and growth modestly picking up, this is a favourable environment for the investment trust to perform,” Hewitt adds.
Increased: after a difficult couple of years, property valuations in the UK and Europe are starting to recover. As a result, Hewitt decided to increase his holding in TR Property (LSE:TRY).
He says: “A great deal of corporate activity has helped share prices, and TR Property has been a beneficiary of this trend.”
Hewitt observes that a background of modestly strengthening economic activity, lower interest rates and attractive property valuations creates a favourable environment for share prices of property companies. TR Property has an outstanding long-term record and has grown the dividend at 8% a year on average over the past decade. The investment trust trades on an -8% discount, is 10% geared, and has a 4.7% dividend yield.
Sold: Hewitt has soldhis position in Capital Gearing (LSE:CGT).The investment trust has an objective of preserving and, over time, growing shareholders’ real wealth. To achieve this, it is defensively positioned, with only 32% invested in equities and the rest in index-linked bonds, conventional government bonds and corporate credit.
“Over the long term, it has achieved the objective with modest absolute returns,” notes Hewitt.
However, he adds: “The financial environment of falling inflation, lower interest rates and modest growth is favourable for more equity-exposed investment companies, which could generate superior performance.”
The proceeds from selling Capital Gearing were invested in UK equity investment companies with potentially stronger prospective returns.
Vincent Ropers, co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income
Reason to be bearish: the extreme volatility experienced in August highlights how febrile economic and market sentiments remain. Inflation now appears under control, but concerns about growth are dominating and will continue to do so in the months ahead as war rages on in the Middle East and Ukraine, and with a critical US presidential election looming.
Reason to be bullish: that said, while recession fears are somewhat justified, economic data so far is proving relatively robust. It is also of significance that we are now entering the next phase of monetary policy where central banks are able and willing to provide support after years of tightening financial conditions.
Increased: Ropers added to his commodities exposure via BlackRock World Mining Trust (LSE:BRWM). Industrial metals such as iron ore or copper have had a difficult few months on the back of weakness in the Chinese economy. But Ropers argues thatmany of them remain indispensable in the energy transition process and that demand will continue to be supportive in the years ahead at a time when supply is constrained by the absence of new mine openings.
Ropers adds:“We used price weakness in the underlying assets and a wider than average discount in BlackRock World Mining Trust to increase our allocation.”
At the end of the quarter, BlackRock World Mining benefited from the swathe of stimulus measures announced in China.
Trimmed:he took some profits across UK value funds, including Man GLG Undervalued Assets, Aberforth Smaller Companies (LSE:ASL), Fidelity Special Values (LSE:FSV) and JOHCM UK Equity Income,after a strong 12-month period. “Our exposure has built up over the past few years as a contrarian call driven by compelling valuations and extreme negative sentiment towards UK equities,” he says.
This year has seen a return of corporate activity, with many of the managers benefiting from takeovers in their portfolios, particularly at the smaller end of the market-cap spectrum.
“In turn, this led to a regain of interest from investors, helping push the market higher and the discounts on our UK investment trusts tighter,” he explains.
Ropers continues to believe that UK equities are an attractive place to be, but his team has nonetheless stuck to their disciplined approach to profit-taking.
Tihana Ibrahimpasic, portfolio manager, multi-asset team, Janus Henderson
Reason to be bullish: our bull case involves a continuation of economic resilience, predominantly in the US, and economic growth remaining solid into the year end based on solid consumer health. In addition, with major central banks now having started their cutting cycle, most interest-rate sensitive parts of the economy could see an additional boost supported by cheaper financing costs.
Reason to be bearish: the bear-case scenarios would entail rates remaining higher for longer (despite some initial cuts), eventually triggering pain for consumers and corporates alike, with defaults picking up, labour market weakness and a recessionary framework. Geopolitics are firmly in focus, with tensions rising in the Middle East and war ongoing in Ukraine.
Bought: Ibrahimpasic recently opened a position in Janus Henderson Japan Opportunitiesfund, which is a high-conviction manager with a preference for large-cap names. The strategy is concentrated in about 30 stocks, with no prevalent style biases, which makes it suitable for a core Japan holding.
She says: “Robust risk management is deployed by the experienced portfolio manager Junichi Inoue.”
Increased: she has added further to her team’s holding in the US value manager Dodge & Cox Worldwide US Stock, diversifying their exposure to areas of the market at relatively attractive valuations that have lagged the market in performance year-to-date, while still maintaining broad exposure to large-cap quality growth stocks.
“Dodge & Cox US Stock has been a long-standing position in our multi-manager book, and the strategy represents one of the longest track records in the US value space,” says Ibrahimpasic.
Trimmed: she marginally trimmed her exposure in BlackRock European Dynamicfund, taking profits after strong performance. This strategy is known for its tilt towards durable quality-growthbusinesses.
Ibrahimpasic says: “A reduction in our position was also based on moderating the growth style bias on the overall portfolio level.”
Simon Evan-Cook, manager of the Downing Fox Funds
Reason to be bullish: central bankers seem confident that they’ve done enough to give us a soft landing after their steep interest rate hikes a couple of years back, and there’s a chance they may be right. Also, China has just fired a stimulus bazooka, which may have wider benefits.
Reason to be bearish: there’s a meaningful risk that central bankers may have overtightened rates a few years back, particularly given the high debt levels in Western economies. If they have, then the recent interest rate cuts may be too little too late, and economic growth will screech to a halt.
Increased: Evan-Cook raised his team’s exposure to the Zennor Japan fund over the quarter.
The fund firm also has an equity income fund for the same region, which UK retail investors - including interactive investor customers - can access, called WS Zennor Japan Equity Income.
Evan-Cook says that he feels comfortable raising exposure to Japan due to its corporate governance reforms. As previously explained, the aim is to make Japanese companies more appealing to shareholders, such as through returning more cash to them in the form of dividends. In time, it is hoped these reforms will encourage both domestic and international investors to put more money into the region, thereby boosting share prices.
Trimmed: at the start of September, Evan-Cook reduced his exposure to cash and short-duration bonds, such as the iShares UK Gilts 0-5yr ETF (LSE:IGLS). “This was to reflect our belief that longer-duration bonds, which we topped up, are looking increasingly able to defend well in equity market sell-offs,” he says.
The four multi-manager panellists
Peter Hewitt is fund manager of the CT Global Managed Portfolio Growth and CT Global Managed Portfolio Income Ord, where he specialises in investment trusts.
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 IFSL Wise Multi-Asset Growth and IFSL Wise Multi-Asset Income.
Tihana Ibrahimpasic is a portfolio manager on the multi-asset team at Janus Henderson Investors. Prior to taking this role in 2021, she was a research analyst in the team from 2018.
Simon Evan-Cook is a multi-asset, fund-of-funds manager with over 25 years’ experience in the investment industry. He joined Downing in 2022 to set up and manage the Downing Fox range 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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