Elston backs ‘recovering’ Templeton EMD fund
Seneca’s Peter Elston is maintaining faith in Franklin Templeton’s Emerging Markets Bond fund and is topping up on equities amid early-2016 falls, despite the vehicle suffering in 2015.
Mr Elston, who serves as Seneca’s chief investment officer and works on the firm’s £100m Diversified Income fund, said the team would stick with its significant weighting to the Templeton vehicle.
The fund – the largest holding at 4.3 per cent at the end of March – shed 4.6 per cent in 2015, according to FE Analytics.
However, it has recovered somewhat in 2016, returning 2.5 per cent year to date.
“It wasn’t a holding that worked very well for us last year,” Mr Elston said.
“At the start of the year the fund had a decent yield but a lot of exposure was to local currency and the fund suffered.
“It doesn’t matter what the yield is – if currencies fall by 10 per cent your yield will get wiped out. [But] we think sentiment to emerging markets is starting to improve.”
The Templeton fund forms part of a significant fixed income weighting, with all top-five holdings being bond funds.
The Seneca vehicle, which yields 5.5 per cent, has kept its fixed income allocation steady at 31 per cent, with a keen focus on short duration and high yield.
“We have a high allocation to high yield, tilted towards Europe and focused on managers who are extremely active and value-oriented, and have no exposure to the areas where there’s lots of stress, namely the US energy sector,” Mr Elston said.
Holdings include the Royal London Short Duration Global High Yield, TwentyFour Dynamic Bond and Axa US Short Duration High Yield Bond funds.
But Mr Elston said the fund had cut two holdings within its specialist assets category – which can include areas such as property, private equity and infrastructure – because of concerns about falling yields.
“We sold the Assura fund, which focuses on GP surgeries,” he said.
“It’s a great fund but the shares had performed extremely well last year and driven the yield down to a level where we thought holding it on valuation grounds could no longer be justified.”
The Seneca investment team also sold online warehousing specialist Tritax Big Box Reit for similar reasons. It used cash from these sales to buy three direct equity positions.
The team bought Royal Dutch Shell (pictured) at “below £13”, according to Mr Elston, in part because it thought the firm’s high dividend yield offered a “margin of safety”.
Other additions were lender International Personal Finance and polymer producer Victrex.
Mr Elston noted the former had seen its price “driven down to 1.5 times book value” because of interest rate caps being implemented in some European countries. But he said it looked “extremely attractive” with a yield of 6.5 per cent.
Meanwhile, he claimed Victrex had a “very dominant market share”, and offered a polymer that was being given new uses.
The Seneca Diversified Income fund has returned 12 per cent over three years, compared to the Investment Association Mixed Investments 20-60 per cent sector average of 8 per cent, according to FE Analytics.