This £479m fund was launched in 1997 with the aim of achieving long-term capital growth through investing in a concentrated, international portfolio of primarily financial services firms.
Guy de Blonay, who was appointed lead manager in January 2011, explains that the fund has a global mandate with the ability to exploit opportunities on a geographic basis from the US to emerging markets. “The aim is to make sure we allocate capital as efficiently as possible in different parts of the world without being constrained by benchmarks,” he says.
“If we don’t believe a country offers any real attraction from a top-down basis and that the macroeconomic prospects of that nation are in decline, we would have to be very convinced to be exposed to a stock in that country.”
The macroeconomic environment is a key part of the process, with the manager looking at the global economy and identifying themes that could be a factor, such as changes to the US interest rate cycle. Once the macro view is completed, the bottom-up analysis of the financial sub-sectors begins with a focus on three thematics.
Mr de Blonay explains: “It is very much linked to sub-sector analysis. The first portion of the portfolio is restructuring stories – special situations. The second-third [portion of the fund] is yield companies – those that offer an income story – while the third-third is growth companies.”
The restructuring story section of the fund is comprised of firms that are going through key changes, such as a change of management, as seen recently by Credit Suisse, Deutsche Bank and Standard Chartered. “It is companies that have been underperforming, where the shares are attractively valued and generally trade at a discount to book value,” he explains. “They also offer a change in management and/or strategy and therefore we think the shares can rerate.”
Meanwhile, the growth portion can be divided into those companies with exposure to emerging markets and those exposed to disruptive technology. The yield portion of the portfolio tends to be stocks that were special situations, but have now come out the other side and the shares have rerated. The manager describes these firms as ones with transparent and efficient business models that offer strong and sustainable dividend policies.
The fund’s I-accumulation share class has a risk-reward level of six out of seven, while its ongoing charge is 1.01 per cent.
For the five years to July 8 2015, the fund has delivered a positive 28.19 per cent, although this lags the MSCI ACWI Financials index’s gain of 45.67 per cent, data from FE Analytics shows. This is partly attributable to a tough 2014 where the vehicle returned 3.7 per cent against the index’s rise of 9.87 per cent, as it had little exposure to areas that outperformed, such as Australian and Canadian banks. Mr de Blonay explains: “We don’t have a significant weighting to Australia because we want to minimise our exposure to the slowing of China. We thought the slowdown [in China] last year would affect the performance of Australian and Canadian banks, [but] we underestimated the chase for yield.”
While the lack of exposure last year meant the fund suffered, there has been a turnaround in 2015 with the vehicle’s 4.33 per cent return for the year to date outperforming the index’s gain of 0.64 per cent. Other themes affecting the portfolio in the past year include the growing trend towards shareholder compensation as management teams come under pressure to improve return on equity. The manager notes: “The latest country to have shown a clear change and become more receptive to shareholder compensation has been Japan. A year ago we had almost no exposure to Japan, but now we have close to 12 per cent.”
In contrast, Mr de Blonay has reduced his holdings in emerging markets on concerns about the impact of a US interest rate rise. He says: “We feel that more than 50 per cent of the portfolio is now in special situations – in companies that are really pushing for shareholder compensation. [These are] firms that are addressing underperformance, addressing capital redistribution to shareholders [and are] focusing on profitability, not on revenue growth.”
EXPERT VIEW
Peter Toogood, investment director, The Adviser Centre
Guy de Blonay is one of the most experienced managers specialising in the financials sector. He is an innate pragmatist, a skill that has been profoundly tested in what has been a very torrid time for the financials sector. The fund has re-established its credentials under Mr de Blonay’s stewardship, having struggled in the early days of the recovery from the financial crisis of 2008. The portfolio is actively managed with a strong macroeconomic overlay and is appropriate for investors keen to expose themselves to the broader financials sector, which embraces banks, life insurance and real estate.
