Special sits boost for balanced sector

High-profile special situations funds from BlackRock, Investec and Liontrust have helped balanced discretionary model portfolios keep pace with the equity rally.

Equity markets globally rallied strongly in the second half of 2012 and meant most major equity indices posted double-digit returns for the year.

In 2012, the MSCI World index delivered a return of 10.7 per cent, the S&P 500 delivered 10.1 per cent and the FTSE 100 was just shy of 10 per cent.

Article continues after advert

The strongest developed market was Europe, where the MSCI Europe delivered 13.9 per cent last year.

Of the balanced model portfolios from major discretionary managers which have reported full 2012 performance data, the Quilter Balanced was one of the strongest after it returned 10.8 per cent in the year to December 31.

The offering had a 73 per cent weighting in equities in December but 14.9 per cent of the portfolio was in Richard Plackett’s £1.5bn BlackRock UK Special Situations fund.

A total of 40 per cent of the Quilter Balanced portfolio is comprised of three funds; Mr Plackett’s, Neil Woodford’s £9bn Income fund, and the £348.9m Henderson UK Equity Income fund.

Mr Plackett’s fund delivered a second-quartile 18.2 per cent in 2012 thanks in part to its focus on smaller companies and has produced top-quartile returns in three and five-year periods.

Vestra Wealth’s Balanced model portfolio returned 10.7 per cent in 2012 with its 67 per cent weighting in equities.

The portfolio’s largest position was a 7.8 per cent weighting in the £715m Liontrust Special Situations fund run by Anthony Cross and Julian Fosh.

The Liontrust duo produced top-quartile returns in 2012 of 22.3 per cent – far outpacing the 15 per cent delivered by the IMA UK All Companies sector, according to FE Analytics. Meanwhile, Alastair Mundy’s £688.7m Investec UK Special Situations fund made up nearly 8 per cent of Collins Stewart’s Select Affinity fund, which had a 69 per cent weighting to equities as at December 31.

Mr Mundy produced a strong second-quartile return of 15 per cent in 2012 due to his cyclical bias which benefited as markets rallied.

The manager had an 8.1 per cent overweight to industrial goods and services and a 3.3 per cent overweight to construction and materials.

However, one of the top-performing balanced model portfolios out of those with full 2012 performance data benefited from the rally in fixed income.

The CF Cornelian Managed Growth fund, which delivered a return of 13.2 per cent in 2012, held the £650m JPMorgan Strategic Bond fund as its largest holding at the end of December at 5 per cent.

The JPMorgan fund is run by Nick Gartside, Bob Michele and Iain Stealey and its 35 per cent weighting in investment grade credit and 33 per cent weighting in high yield corporate debt was a boon for the managers after both fixed income sectors rallied through the back of 2012.

It also held a strong weighting to equities of 63 per cent which would have helped the offering keep pace with the equity rally.