Multi-asset managers powered by US and Japan equities

Large weightings to US and Japanese equities helped propel multi-asset managers up the rankings in 2014 but some counterintuitive calls also lifted performance.

US equities have been among the strongest markets this year, while exposure to the Japanese stockmarket has also helped managers with significant weightings to the country. Getting the currency hedging right in Japan, however, has been crucial as the pound strengthened against the yen.

Camilla Ritchie, a member of the Seven Investment Management multi-asset team, said a high US weighting in particular had helped the performance of her Sustainable Balanced fund as well as others in the 7IM suite.

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Ms Ritchie said her trade had focused on the Russell 2000 index of smaller companies, which tended to be more domestically focused and less affected by the strong dollar.

The manager added her early adoption of positions in peripheral European government bonds had also helped and more recently she had been buying longer-dated bonds, on which the yields had been less compressed by investors searching for income.

Stacey Ash, who runs the Thesis iFunds Spectrum range, also had a large exposure to overseas equities – including those in the US – but added one of the biggest drivers of performance had been a heavy weighting in gilts.

Many investors at the start of 2014 expected meagre returns from UK government bonds, given the prevailing view that inflation would return and global growth had established itself.

However, analysis of the average returns from all bond-based IMA sectors showed the UK Gilts sector was the second best performing up to early December with a return of 11.2 per cent, beaten only by the UK Index Linked Gilts sector’s 15.1 per cent, according to data from Morningstar.

Mr Ash said his fund range, which uses a computer-based algorithm to create its asset allocation, had a significant weighting in the asset class – up to 35 per cent in some funds – which had boosted his performance.

He added his model was pointing to low inflation into 2015 and had not flagged European equities as an opportunity yet.

Mr Ash’s Orange fund was the second best performing multi-asset fund across the four IMA Mixed Investment sectors in 2014 to December 9, according to data from FE Analytics.

Other funds, including Troy Asset Management’s Trojan fund, also has 16 per cent in UK index-lined bonds, which have performed strongly this year.

Christopher Metcalfe, who runs the £1.4bn Newton Managed fund, said stock selection had been key to his product’s outperformance, as had an increased weighting throughout the year to US stocks.

The manager said US and UK equities were both roughly at 33 per cent of the portfolio, but added it had “become more difficult to find UK equities” as the environment domestically was “more challenging”.

He said the portfolio was likely to become “more US orientated” in 2015.

What managers avoided had an impact too

It’s obvious what managers invest in has a bearing on returns, but sometimes it is the bullets dodged that lead to the outperformance of peers.