Coombs turns away from open-ended funds
Rathbones’ David Coombs has shifted away from open-ended vehicles in his multi-asset range, opting instead for investment trusts and direct holdings.
In October, Rathbones expanded the range and enabled the funds to hold direct investments with a “realistic and sustainable monthly yield”, a move that allowed Mr Coombs and assistant fund manager Will McIntosh-Whyte to invest directly in large-cap equities.
The change has also ignited a shift to investment trusts for the more illiquid and specialist asset classes. Mr Coombs said he “massively” favoured closed-ended vehicles.
“We still use funds for areas like emerging markets and smaller companies. But for large-cap [equities] we go direct and investment grade [bonds] we go direct,” he said.
“We massively prefer investment trusts. The areas we are investing in tend to be less liquid, so it makes sense to use an investment trust.”
Holdings in this area include the Ballie Gifford Shin Nippon vehicle, added in the final quarter of 2015. The manager also took part in the launch of the Coupland Cardiff Japan Income & Growth Trust.
Despite shifting the composition of funds, Mr Coombs has maintained a cautious approach generally, holding high levels of cash because of liquidity fears.
The manager’s cash levels, built up in late 2015, sit at around 9 per cent in the Total Return portfolio, 6 to 7 per cent in Strategic Growth and 4 to 5 per cent in Enhanced Growth.
“Everyone will tell you that liquidity is horrific,” he said. “As a norm I hate holding cash. You lose money on cash.”
Mr Coombs said foundations for the shift to direct holdings were threefold, two being the ability to stress-test a portfolio more accurately and back his own views.
“Cost is also an issue,” he added. “Saving 50 basis points of costs in a world of low returns seemed a good idea.”
More broadly, Mr Coombs topped up high-quality US stocks that could benefit from consumer spending boosted by a depressed oil price. He remained “cautious to neutral on Europe” with some long-term structural growth stocks.
In fixed income, the manager added high-quality investment grade bonds because of his worries about the “risk of deflation”. He explained: “I had this niggle at the back of my mind that oil could break to $15. I thought, what if oil continues to fall?”
However, he also invested in Shell, Exxon and Total to mitigate any sudden rise in the oil price.
He said: “I need to start to mitigate the breakout of oil on the upside. What if Saudi said they weren’t going to pump oil for two months? There has to also be a risk that oil will go to $50 quite quickly.”
According to FE Analytics, over three years the Rathbone Total Return Portfolio – the third fund on the risk scale – returned 9.4 per cent compared with 8.3 per cent from its benchmark, Libor 6 month plus 2 per cent.