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from Asset Allocator

Searching for the best in this difficult town

Pundits predicting tougher times for the US are a dime a dozen, and for good reason.

The US, like the UK, is heading into a severe cost of living crisis. Inflation and interest rates are rising - the Federal Reserve raised the target range for the fed funds rate by 75bps to 2.25 per cent to 2.5 per cent during its July 2022 meeting and many in the market expect it to go higher again. 

In fact, as early as 2021, when commentators started singing from the same hymnal about valuations in US markets being overblown, several DFMs took note.

We saw the likes of Seven Investment Management sell its Fidelity US Tracker holding in Q2 last year; Vestra sold its holding in the L&G US Index fund in Q3 last year. 

So it would not be unreasonable to suppose discretionary fund managers have been reducing their US exposure over 2022 in the light of valuation expectations and a tightening economic environment.

Not so; in fact as late as July this year, many globally diversified funds from DFMs still had a significant skew towards the US.

Take for example Bordier & Cie's Platform Managed Portfolio Service Growth Strategy fund, which is available to advisers through platforms.

Over the year to 31 July, the performance of PMPS (a memorable acronym) held up against the ARC Steady Growth PCI index, down 10.7 per cent compared with 11.2 per cent for the index. 

This compares to strong outperformance in 2021, when it was PMPS was up at 12.5 per cent, compared with 10.2 per cent for the index (according to FE FundInfo). 

Despite this seeming 20 percentage point drop in performance, by the end of H1, PMPS Growth Strategy still had 36 per cent in US equities, as per the (American) pie chart below.



Evidently this weighting paid off in 2021, but as the US market is famously hard to beat as an active manager, what is the attraction of US equity funds to Bordier & Cie's investment teams?

Jamie MacLeod, chief executive of Bordier UK, told Asset Allocator: "Our overseas and therefore UK light (sterling) strategy has done a great job for our clients.

"Our current US holdings include funds managed by Premier Miton, Arbrook, M&G, and Findlay Park. We would agree that it is difficult to beat the market, but perhaps as a result of good investment research, fund selection, and a little luck, we have."

MacLeod said: "Our most recent purchases – which have worked well in these markets – include the TM Tellworth UK Select Fund and the Artemis Target Return Bond Fund."

Tellworth may not be a firm that is on the radar of many DFMs, though the individuals behind it, Paul Marriage and John Warren, have a high market profile from their time running small-cap money at Schroders.

Additionally, former Invesco head of UK equities Mark Barnett joined the firm last year.

The strength of Marriage and Warren's reputation is such that the Tellworth fund is owned by three of the allocators we cover, in a competitive UK smaller companies sector. 

Nor are Bordier & Cie's managers hedging their bets by maintaining heavy weightings towards cash. "Cash is [only] a small part of our strategy", MacLeod adds.

The somewhat high-conviction approach described above is also reflected in the 2 per cent allocation to cash in Bordier's Balanced portfolio. The sector average, according to our database, is 3 per cent cash.

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