Miton axes Japanese stocks on China fears
Miton managers David Jane and Anthony Rayner have ditched Japanese equities in the belief these have become an “amplifier” of problems in other markets.
The managers of Miton’s three multi-asset portfolios, who predominantly focus on direct investing but can buy third-party funds, decided to “reduce Japan to zero” because the economy had lost its value as a diversifier, Mr Rayner said.
Exposure to Japanese equities made up nearly 15 per cent of the £318m Miton Cautious Multi Asset Fund at the end of June 2015, before falling to 9.1 per cent at the end of December.
This dropped to 3.3 per cent at the end of April this year, with the remainder being sold since.
“That was a big position for us,” Mr Rayner said. “Partly that was because it was a good diversifier of Western equity beta.
“But when China fell out of bed, Japan became an amplifier of problems in the global economy.”
This has seen the managers, who compile “buckets” of holdings rather than focusing on stockpicking, ditch investments in companies such as manufacturer Fanuc, which is involved in areas of innovation including robotics.
“That’s an example of something we like but where the macro dominates our thinking,” Mr Rayner said.
China has become a focal point for concerns about the macro outlook in the past year, with many fearing that a slowdown in the world’s second biggest economy could have a knock-on effect.
Worries about the global economy have not prevented the managers from upping their exposure to emerging market equities, however.
These made up 6.1 per cent of the Cautious Multi Asset vehicle at the end of April, up from 0.8 per cent at the end of 2015, with the duo focusing on countries such as Mexico, Brazil and India.
“We added a little bit to India,” Mr Rayner said. “It’s an emerging market but has a fairly self-dependent economy. It has got quite a few differentials from other emerging markets. Part of the rationale is that with a better monsoon predicted, a lot of [economic growth] should trickle down to consumers.”
As part of this, Mr Rayner is focusing on consumer-focused stocks, such as tobacco name ITC and Unilever.
“We are not going crazy. We are not buying the commodity players [in emerging markets],” Mr Rayner said. “We are buying the steadier plays, rather than the high-risk positions.”
The managers also added to their UK exposure – with holdings such as the British Land and Land Securities REITs benefiting, as well as Halfords and Carphone Warehouse – after valuations fell in the run-up to the EU referendum.
Meanwhile, the managers, who tend to invest directly for the “precision” this brings, have retained a handful of positions in external funds, among them TwentyFour Monument Bond and NB Global Floating Rate Income.
“We have less than 5 per cent [in external funds] but do use funds in areas that we struggle in. We don’t want to play in areas where we don’t have strengths, such as asset-backed securities,” Mr Rayner said.
According to FE Analytics, the Miton Cautious Multi Asset fund returned 7.5 per cent since December 2014 – when the pair began managing the fund – compared with 3 per cent for the IA Mixed Investment 20-60% Shares average.
