Mr Rees explains the investment process starts with the team’s investment philosophy, which is based on diversification and active management. Aside from investing across different asset classes, markets and sectors, the team invest in funds managed by “carefully selected specialist fund managers”. At the end of April, the fund was invested in 48 underlying investments, managed by 48 different specialist investment teams.
The maximum individual fund holding is 5 per cent. The team seeks the right blend of investments to deliver growth and income, with the biggest weighting in growth-focused investments “but an appropriate weighting to income-generating and some specialist income-generating holdings”.
Mr Rees adds: “Importantly, our investment process allows us to consider different types of investment structures, so although we typically invest in open-ended funds, where we believe it is more suitable we will invest in closed-ended investments. For some asset classes and investment strategies, fixed capital structures can be a much more efficient way to invest.
“Asset allocation decisions are an important part of the process, but fund selection is an area where the team really looks to add value. We like equity funds with a high active share and, more generally, we like managers who we believe are not running too much money for their strategy.”
The fund’s C Income share class sits at a risk-reward level of four out of seven with ongoing charges of 1.63 per cent, according to its key investor information document.
| EXPERT VIEW - Martin Bamford, managing director, Informed Choice |
| This fund has enviable first-quartile performance over one, three and five years. The management have made some smart calls during the past year, increasing exposure to equities following a market correction and raising exposure to US dollars when the pound became expensive. There is real active management taking place here, which, to some extent, justifies the charges. Investors in this fund will be seeking capital growth, with income a lesser priority and only a modest historic yield available. In the current low-yield, low-return environment, investors would be advised to seek lower cost alternatives to avoid a large part of their investment returns being swallowed up. |
In the five years to May 20 2016 the fund’s share class has delivered a positive 48.7 per cent return compared with the IA Mixed Investment 40-85% Shares sector average of 25.4 per cent. It has also outperformed the sector across one and three years, although its 12 month loss of 1.2 per cent is only marginally better than the sector’s average 4.5 per cent fall, according to data from FE Analytics.
Mr Rees points out: “Our primary driver for allocating capital rests with a valuation appraisal, which seeks to identify areas of unloved or overlooked opportunities. A good example of this has been the macro headwind of the EU referendum this year. This has seen both sterling and UK domestic plays weaken. The speculation by thematic investors surrounding Brexit appears to have put a discount for uncertainty on a couple of assets, namely sterling and UK smaller companies. As a consequence, we have found the opportunity to increase our exposure to these areas.”
Other recent changes to the portfolio include reducing equity exposure in favour of absolute return long/short equity funds and adding to an emerging market debt position initiated in January via an additional holding in February, “which proved timely given the rally”.
“This year we have also benefited from the performance of Asian and emerging market equity exposure. We have had to be patient for the valuation support to be realised but remain encouraged by the degree of opportunity our underlying managers are finding in their respective areas.”
On the flip side, he acknowledges the Japanese allocation “has been a notable headwind of late as investors wane on the latest macro developments of Abenomics”.
“Reorienting an economy will never be accomplished smoothly so, thankfully, our rationale is centred on the improving trends of corporate governance and earnings alongside valuations that do not fully reflect this shift. Playing this particular trend is our holding of Coupland Cardiff Japan Income and Growth that has been bucking the poor run for Japanese equities, helped by its income focus,” he explains. “There will always be areas of the portfolio that aren’t working so well. We continually test assets that disappoint to see that nothing fundamental has changed to the detriment of our original thesis. If not, we force ourselves to be patient.”
