InvestmentsJan 22 2015

UK ‘detractors’ hurt Thorneycroft

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UK ‘detractors’ hurt Thorneycroft

Underperforming UK stocks and unexpected management changes in underlying holdings held back Katy Thorneycroft’s Elect Managed Growth trust in 2014.

The manager of JPMorgan Asset Management’s (JPMAM) £218.5m investment trust said the poor performance of UK equities was a key detractor in the trust’s relative returns, as was the shock departure of Julie Dean from Schroders.

Ms Thorneycroft’s trust invests largely in trusts and funds run by JPMAM, but it was its holdings in third-party vehicles that caused her problems last year.

The manager said Baillie Gifford’s Edinburgh Worldwide Investment Trust and the Schroder UK Growth trust were “significant detractors” to performance in 2014.

“Their underperformance was really a function of UK underperformance,” Ms Thorneycroft said.

The manager has since reduced her holding in the Baillie Gifford trust, which, at the end of November, had 22 per cent in UK equities.

Douglas Brodie took on the trust in January last year, when its mandate changed to focus on a portfolio of “initially immature entrepreneurial companies” with a market capitalisation of less than $5bn (£3.3bn) at the time of initial investment. But Ms Thorneycroft said she was not convinced by the trust’s new focus on smaller and mid-cap companies.

In the year to end-November, the Baillie Gifford trust’s shares had risen 1.2 per cent compared to 6.4 per cent for its S&P Citigroup Global Small Cap index benchmark, according to the fund’s factsheet.

Ms Thorneycroft was also affected by the steep losses endured by the £275m Schroder UK Growth trust, which had a tricky year with the shock departure of its manager in September last year.

The Schroder UK Growth trust lost 16.2 per cent in 2014 in spite of the FTSE All-Share index benchmark rising nearly 1.2 per cent, according to data from FE Analytics.

However, Ms Thorneycroft is sticking with the trust as she is convinced new manager Philip Matthews can reinvigorate it.

“Schroders as a house is strong and it has a breadth of resources,” she said.

“The trust is not doing well at the moment, but I am still positive about it.”

Shares in Ms Thorneycroft’s trust rose 7.8 per cent in the year to end-November, although its benchmark index – which is split 50-50 between the FTSE All-Share index and the FTSE World index (ex UK) – rose 9.3 per cent.

The manager said she was underweight the UK with roughly 43 per cent of her portfolio exposed to the country.

She said it would take accelerating economic growth or even more quantitative easing for her to return to an overweight position in the UK, especially given the “headwinds” that are being created by the upcoming elections.

Elsewhere, the manager is overweight the US and Japan, which make up 34.4 per cent and 5.4 per cent of her trust, respectively. The manager is neutral on emerging markets, which comprise just 2 per cent of her portfolio.

How is the UK economy shaping up?

The bulls and bears are having a bit of a tug of war when it comes to the UK economy.

With inflation in December at just 0.5 per cent – its lowest level in 15 years – there is inevitably concern that this phase of disinflation could turn into outright deflation.

Some argue the fall in the oil price, which is having the biggest negative impact on inflation, will act as a boost for the economy as it will lower costs for businesses and consumers.

JPMorgan Asset Management’s Katy Thorneycroft says she will not add to her underweight UK position unless economic growth improves or support is given to the economy if it begins to falter.

While many investors argue there is little correlation between the health of the economy and how companies perform, making a call on inflation could be key to picking the right stocks in the UK.