Cornelian’s Hector Kilpatrick has slashed exposure to the UK across his five multi-manager funds in an effort to benefit from a strengthening dollar.
The chief investment officer and co-manager of the funds said that UK exposure in the £32.3m CF Cornelian Progressive fund had fallen from roughly 60 per cent at the start of the year to roughly 34 per cent at the end of July.
“In January, we had a heavy weighting towards UK equities but took that down aggressively,” he said.
“We had a feeling that the dollar was strengthening and there were likely to be positive surprises on the macro side in the US.
“We were keen to be exposed to that stronger dollar, and while UK companies do have good exposure to US, by going direct you get the immediate effect rather than wait for hedges to expire.”
In total, the Progressive fund had more than 90 per cent in equities at the end of July, according to its latest factsheet. This included 34.4 per cent in UK equities and 18 per cent in the US.
Elsewhere in the equity portfolios Mr Kilpatrick said he remained slightly sceptical of the outlook for Japan, saying the current upward momentum in the country’s equity markets “will probably end in tears” in spite of a huge economic stimulus package being rolled out by the Japanese government and central bank.
Mr Kilpatrick said: “We were concerned when the 10-year government bond yield went above 1 per cent, albeit briefly, and the central bank had to intervene.
“Japanese bond yields will rise over time, but the government needs for taxes to rise too.
“I’m concerned that it might not move as neatly as needed.”
On the fixed income said Mr Kilpatrick said he had been scaling up his funds’ exposure to floating rate bonds and strategic bond funds in an effort to manage more effectively the Cornelian portfolios’ sensitivity to interest rate movements.
Cornelian has just signed a deal with Distribution Technology (DT) to risk-rate its five multi-manager portfolios. The funds have been rated between 3 and 7 on DT’s 1-10 risk scale.
Mr Kilpatrick said the funds had “always been managed with DT’s volatility limits in mind”.
The biggest multi-manager fund, the £69.5m CF Cornelian Growth fund, gained 36.5 per cent in the three years to August 6 according to FE Analytics. This compares with a 41.1 per cent gain from the FTSE All-Share index in the same period. The Progressive fund posted a 37.7 per cent return in that period.