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Columbia Threadneedle's multi-manager team doesn't buy Fed "pivot" narrative

Asset Allocator recently caught up with the multi-manager fund team at Columbia Threadneedle.

That’s the team led by Rob Burdett - who was part of the long-established duo with Gary Potter (now retired) at F&C and then BMO before the latter was was acquired by Columbia Threadneedle. 

In fact, the dynamic duo, as they were known, had worked together since 1998 when at Rothschilds, moving through a spell at Credit Suisse Asset Management before heading to F&C. The rest, as they say, is history.

Senior members of the current Columbia Threadneedle multi-manager team told Asset Allocator they had come into the year cautious on equities, saying they didn’t really buy the narrative of a Fed “pivot” which propelled equity markets upwards in January.

Manager Scott Spencer said that, in the majority of portfolios they run, the team reduces underweights in equities throughout January, dropping to 4 per cent underweight from the previous 6 per cent, but by February have reverted to 6 per cent underweight, a position they remain at today. 

Spencer said this is a function of him “taking the Fed at their word that interest rates would keep rising until inflation fell, even if that meant a recession happened.” 

The principal source of his underweight to equities is a lack of enthusiasm for the US market, which he says looks expensive.

And the capital which isn’t being deployed into equities, the team is putting into bonds. 

He said one no longer has to “reach” to get yield from bonds, and this means the asset class is now much more investable.

Kelly Prior, who looks after the bond side of the book, said: “To a large extent investing in bonds right now is a case of if you can be reasonably confident of getting your money back, then it is just worth owning bonds for the income.”

One of the two bond funds she favours in the current market conditions is Jonathan Golan’s Sterling Corporate Bond fund at Man GLG, which has delivered a positive return over the past 12 months to March 20, a period when the average fund in the IA Sterling Corporate Bond sector has lost 8 per cent. 

Golan’s fund is not owned by any of the other allocators we cover. 

The other fixed income fund Prior favours at the moment is Michael Scott’s High Yield Bond fund, which is also a Man GLG product, which is owned by four of the allocators we cover and so is one of the most popular high-yield funds among DFMs. 

Prior also recently added the Premier Miton Corporate Bond monthly income fund to her book; she told Asset Allocator she likes the yields offered. 

A challenge for DFMs in recent years has been to find assets which aren’t correlated to wider market movements. 

Spencer said the higher yields now offered by bonds has somewhat restored the principal that bonds and equities are inversely correlated, but he feels this doesn’t detract from the need to find alternative assets.

However, he said he was sceptical of the investment case for some of the larger absolute return funds, as he feels they have a much higher correlation with the performance of equity markets than should be the case.  

But he does own three such funds, all from lesser-known fund houses: Tellworth UK UK Absolute Return, Man GLG ABsolute Return and a recently added position in the Iguana Long Short fund.

This latter is a fund launched by former Majedie fund manager Chris Reid. 

It is a long/short equity fund, the only type of Absolute Return strategies Spencer is interested in - he explained that the fact they engage in short selling means they can deliver returns which are negatively correlated with equities. 

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