The folks at Abrdn have been in touch about the latest changes they have made to their MPS proposition, revealing that they’re going down the market-cap scale in search of alpha.
The team has taken some noticeable positions in small-cap funds, having recently increased their weighting through two mandates in particular: Royal London UK Smaller Companies and Janus Henderson European Smaller Companies.
“We now feel smaller companies, both at home and on the continent, are in somewhat of a sweet spot to provide a strong degree of risk adjusted returns for the portfolios,” said Thomas Watts, investment analyst for Abrdn’s portfolio solutions.
“Heading into a probable recession in both the UK and Europe, we favour higher quality companies that can demonstrate robust profitability, strong cash flows, and a management team that consistently adds value, while preferring to invest in funds that can find such companies at reasonable valuations.”
Justifying the two picks, he added that both offerings hold a strong valuation discipline, refusing to pay for growth if it comes at too high a price. They also hold the characteristics of core growth funds, but are allowed the flexibility to adapt throughout the market cycle within reason, and this is what has put them at the heart of abrdn’s small cap exposure, according to Watts.
It’s worth noting that Abrdn has become the first house in our database to own Royal London UK Smaller Companies, and only the second fund selector to own Janus Henderson European Smaller Companies.
As far as UK smaller companies are concerned, the most popular selection continues to be Chelverton UK Equity Growth.
In January Abrdn's senior investment manager Jason Day told us he holds the 3,600-stock strong Vanguard US Equity Index as a way to hedge against concentration risk in the ‘Magnificent Seven’.
“With mid-caps trading at a 30-year valuation disparity relative to the blue-chip index, there is a strong argument for reversion to the mean and significant outperformance from mid-caps,” he said.
