The managers have put roughly half of their £867.1m CF Miton Special Situations fund and £257.2m CF Miton Strategic fund into dollar-denominated assets and assets denominated in Asian currencies pegged to the dollar.
Mr Sullivan described the fund’s performance in 2012 as “bitterly disappointing”. In the 12 months to April 26, the Special Situations fund posted a bottom-quartile return of 6.6 per cent, while the Strategic fund gained 7.1 per cent, both less than half the IMA Flexible Investment sector’s average return of 14.4 per cent. The funds are bottom quartile based on three-year performance, too.
But in the past three months, both funds are third quartile, with the Special Situations fund’s 4.1 per cent gain in line with the sector average.
“We are still defensive, but this year we are seeing a modest weakening of sterling,” Mr Sullivan said. “Last year was painful, as sterling was unjustifiably strong – even the Bank of England acknowledged it was getting beyond a level it was comfortable with.
“The expectation of an interest rate rise in the UK has been pushed back, and that leads to a weaker sterling in the short term. The driver of the dollar has been [the fact] the US financial sector appears to be back in favour, and credit growth is picking up.”
Both the Special Situations and Strategic funds have roughly a third invested in ‘managed cash’, the majority of which is money market funds in various currencies, as the managers are seeking to benefit from currency movements.
Mr Sullivan said the high cash weighting also partially reflects the managers’ view that there are “more sell ideas than buy ideas”. Mr Sullivan and Mr Gray have sold down some of their direct equity holdings as valuations have become stretched.
The pair have sold GlaxoSmithKline and Land Securities in recent weeks, with the pharmaceutical giant’s share price having gained 21.6 per cent in the past six months. Land Securities has gained 9 per cent in that time, but the managers have cashed in on much bigger gains, having bought the property company in December 2008, since when the share price has risen more then 40 per cent.
Elsewhere in the portfolios, the managers are maintaining a significant position in Japan, with roughly 10 per cent invested in Japanese equities. They also hold Japanese property assets and currency exposure.