Equilibrium slashes property exposure

Mr Deverell, the firm’s investment manager with responsibility for four core model portfolios, has halved his property exposure from a 2015 high of nearly 30 per cent in the firm’s Balanced offering.

The move – executed between February and April by selling Standard Life UK Property and reducing holdings in offerings from Aviva Investors, Aberdeen, Henderson, Standard Life Investments, M&G and Kames Capital – comes at a difficult time for the asset class.

Several property funds have shifted pricing in recent weeks, after the IA Property sector was hit by £166m of net outflows in the first quarter of 2016, as investors appear to reassess the outlook.

“I don’t see any major issue in the asset class, but we felt it was starting to run its course,” Mr Deverell explained.

“The yields were coming down and we are not getting a lot of income growth. We felt we could get better returns in fixed income.

“We got the property [exposure] down before the major repricings.”

The Balanced portfolio’s weighting to fixed income has nearly doubled, from around 8 per cent earlier this year to 15 per cent, as Mr Deverell looks to take advantage of the early-year sell-off in corporate debt.

“In February, we bought the BlackRock Corporate Bond Tracker,” he said. “We did that because the yield on the corporate bond index went to about 4.1 per cent. A year before, it was about 3 per cent.

“We felt it was pretty low risk to make a reasonable return.”

The manager also “topped up” investments in the Jupiter Strategic Bond, Royal London Sterling Extra Yield Bond and TwentyFour Dynamic Bond funds.

Another tactic employed by Mr Deverell this year has been the use of passive funds for short-term tactical trades.

As part of this, the manager bought the Fidelity UK Index vehicle and the iShares FTSE 100 exchange-traded fund in the opening weeks of the year, as market stress took hold, before selling them off as they rallied.

This saw the equity weighting in the Balanced portfolio reach around 41 per cent in mid-February, before dropping back to its current level of 35 per cent.

“On the equity side we have been trading volatility. When markets have dipped we have bought, and we have sold when they recovered,” he said.

Mr Deverell is also among those to have taken a shine to alternative equity offerings.

“There’s a lot of [divergence] between asset classes, regions and monetary policy, so a fund that can go long and short has a big opportunity set,” he said.

This year, the Balanced portfolio’s weighting to alternative equity rose from around 12 per cent to 17 per cent, with Mr Deverell buying the Natixis H2O MultiReturns fund.

He noted the vehicle could be “pretty volatile” but said it was balanced out by other holdings in the space, which include Invesco Perpetual Global Targeted Returns.

“We bought [the Natixis fund] at a low in February. It really dipped because it was long dollar and short US Treasuries.

“It was an obvious play for if rates were going up [in the US] but earlier this year none of those plays worked. The fund has recovered quite nicely [since then].”