Henderson Global Investors’ Paul Craig says he is wary of an impending stockmarket correction following the market rallies of the past few months.
Mr Craig, who runs the Cirilium range of multi-manager funds, said he had paid more attention to the valuations of potential investments because prices had risen strongly.
“We are looking for a value correction and are dogmatic on price,” he said.
“One of the risks going forward is valuation risk.”
The US’s Dow Jones Industrial Average and S&P 500 indices both hit record highs earlier this year and, in spite of a volatile August, the FTSE 100 index has posted a 12.4 per cent gain in the past year and the FTSEurofirst index 300 rose by 10.7 per cent in the same period.
Mr Craig said his £270.2m Cirilium Dynamic fund, which has the most risky mandate of the five-strong range, had strong weightings in UK, US and European-listed private equity funds as these remained at “conservative valuations” of roughly a 20 per cent discount to the net value of their assets.
“The environment we are in is a difficult one,” Mr Craig said. “We have enjoyed very strong returns in the past year, [meaning the chance of] potential slip ups is higher.”
Mr Craig said he employed a combination of top-down and bottom-up approaches and tried to pick managers who would perform in the macroeconomic environment he predicted.
The manager said the Neptune Japan Opportunities fund, run by Chris Taylor, was his second largest holding because Mr Taylor shared Mr Craig’s views on the prospects for Japan.
“One of the catalysts for driving returns is the weaker yen and Chris hedges the currency within the fund and focuses on international businesses,” he said.
“It was the positioning that attracted us to the fund.”
Elsewhere, the manager said he had sold some investment trust holdings after their shares had rallied, meaning the valuations were now less compelling.
“Investment trust discounts are the lowest they have ever been,” said Mr Craig, who has more than 20 years’ experience in the closed-ended funds industry.
However, Mr Craig said he still held the Baillie Gifford-run Monks investment trust, which was Dynamic’s fifth largest holding at the end of July.
“Monks is a contrarian play for the Dynamic fund,” he said.
“It has gone through a period of underperformance – the company has been the only other major buyer of shares,” Mr Craig said, adding that he was confident in the ability of Monks’ manager Gerald Smith.
“We are expecting a turnaround in his fortunes,” Mr Craig said, adding that performance had been very strong recently.
The Cirilium Dynamic fund has delivered a return of 30.9 per cent in three years to September 6 compared to the IMA Flexible Investment sector’s 23.7 per cent, according to FE Analytics.
What is Cirilium and what does it offer?
Cirilium is a joint venture between asset manager Henderson Global Investors and financial adviser group Intrinsic Financial Services and offers five multi-manager funds – Conservative, Strategic Income, Balanced, Moderate and Dynamic – all run by Paul Craig.
Danny Knight, director of strategic partnerships at Cirilium, says he envisages it as a “one-stop shop” for outsourcing investments. He added that Cirilium was looking to extend its range following the launch of four passive funds in February.
The next step, he said, is for the business to launch a protected product, although the firm is conscious that the regulator is keen to see evidence of client demand before anything is brought to market.