Lumin Wealth’s Daniel Greenhough has dropped the Lindsell Train UK Equity fund as his team tilts the firm’s range of model portfolios towards a value bias.
Mr Greenhough called the Lindsell Train manager Nick Train a “good growth-focused manager”, but decided to substitute the fund with Ben Whitmore’s Jupiter Special Situations product, in part so the Lumin portfolios continue to take a concentrated stance.
The underlying reason for the swap was Mr Greenhough’s belief that a rise in economic growth and consumer prices will enable value stocks to continue their recent rally this year. The manager is sticking with this position despite some managers having already called time on the so-called “Trump trade” (see page 9).
“The Trump trade is pro-growth and pro-inflation. We’ve been calling for an outperformance of value over growth for the past year and we’re looking to tilt our portfolios towards value as a result,” he said.
Mr Greenhough added the move to value can be linked to an upwards shift in government bond yields, which he sold out of in July last year when the 10-year gilt yield dropped to 0.75 per cent. He said he would not move back into sovereign debt until UK 10-year gilts reached 2 per cent.
“If you think of growth stocks as essentially being long-duration assets then you can see why they’d get more badly hit by a rise in bond yields than value stocks, which are shorter duration in nature.
“That theory would fit with the past few years where growth outperformed as bond yields have been falling. If July was the turning point for bonds then it suggests value will outperform, which it has been doing.”
The investment manager moved to a zero weight to government bonds last summer, having previously upped positions in January via index funds such as the iShares Index-Linked Gilt fund.
Other fixed income exposure was rotated into short-dated high-quality corporate bond vehicles, such as the iShares 0-5 Years Corporate Bond fund.
Mr Greenhough also added to the range’s exposure to real estate, primarily through investment trusts Custodian Reit, Tritax Big Box Reit and UK Commercial Property Trust, as he viewed the UK property price drop following the EU referendum as a buying opportunity.
“We went overweight real estate last year in July after Brexit had hit all these prices. That’s played out quite nicely for us. When we look at returns they range from about 4 per cent to 14 per cent on our real estate funds, which is ahead of the bricks-and-mortar funds.”
The manager said he was considering the addition of commodity exposure, both through physical and equity-linked commodity plays, as the next step in his Trump trade, especially if the president delivers on his promises of fiscal stimulus via infrastructure spending. The move would also help defend the fund against rising inflation.
“Commodities, especially physical commodities, are a great hedge against unexpected rises in inflation.”
