Exploiting bargains to ride out the storm
As economic turmoil continues to result in short, sharp investment cycles, Rathbone’s James Thomson has allowed his fund’s cash position to reach almost 20 per cent of its portfolio.
The manager of the £165.6m Rathbone Global Opportunities fund claims that slowing global growth and a ‘wait and see’ attitude in corporate spending has made him less optimistic on the outlook for 2012.
“The second quarter certainly doesn’t look as good [as the first], and we have hit an air pocket of growth. Everything has just hit the pause button, [and] discretionary spending has been reined back, so I’m more cautious.
“I’ve been allowing my positions to build up, waiting for other opportunities to emerge, but we don’t know what they are going to be and it is going to be very frustrating in a world where we like trends. It is going to be a stop-start economy for years and that is frustrating for fund managers, which ultimately makes it hard to be consistent performers.”
Mr Thomson argues that in allowing his weightings in cash to increase he is positioning the fund for a variety of economic scenarios and admits that this will detract from the fund’s ability to deliver outstanding returns, but should limit any losses.
“It probably means that I don’t shoot the lights out if things go well, but it also means I won’t do very badly if we have further deterioration. Investors really need to think of long term horizons of three years plus. It’s the only way to make money.”
For a portfolio that exploits a narrower range of ‘global opportunities’, this kind of shift into cash might seem disconcerting. So far, however, moves like this have worked well for Mr Thomson. Since taking over the fund in July 2005, he has delivered returns of 87.66 per cent, outperforming his FTSE World benchmark by 35.5 percentage points.
Mr Thomson says this outperformance has resulted from his focus on what consumers really seek in times of hardship – bargains.
“I’ve generally added to my weatherproofed companies, which are reliable, predictable and not exposed to economically sensitive parts of the market.
“AB Foods in the UK or Dollar Tree in the US, for example, are very much what the consumer wants – bargains, no fun and games, nice and simple.”
His position in Associated British Foods, which owns discount clothing store Primark, makes up 2.32 per cent of the fund. The Dollar Tree, in which every item costs the consumer $1 (64p), makes up 2.5 per cent of the fund.
Financial firm Visa is the fund’s second largest holding at 3.5 per cent, but amid an ongoing financial crisis the manager is keen to add that he has no exposure to banks or insurance groups.
“I’m always looking for something different about my companies, a bit of innovation. When you match innovation with banking, it is usually illegal,” he jokes. “[Banking] is a zero weighting for me. It is easier that way.”