Fairstone Wealth’s Oliver Stone is maintaining his positions in gold and absolute return funds despite acknowledging an early 2016 switch from equity portfolios into the products had proved a mixed bag for performance.
Mr Stone, deputy manager on the MarketStar portfolios at Fairstone, said the team was holding onto defensive moves made in early 2016, as some were now once again proving fruitful at the start of this year.
“We’ve been cautious for over a year now, and made calls in early 2016 which have worked well at times and not so well at others,” Mr Stone said.
The team became concerned by equity market volatility and valuations early last year and shifted capital away from the asset class, splitting it between higher-risk alternatives and safety plays. Equity exposure was brought down from 55 per cent to 33 per cent in the firm’s Diversified Growth Portfolio, which targets a return of inflation plus 3 per cent.
Some 11 per cent of assets went into long/short strategies including Guy Rushton’s Polar Capital UK Absolute Equity, Liontrust’s European Strategic Equity and Barry Norris’s struggling Argonaut Absolute Return strategy.
While the former two long/short funds have posted positive returns over the past year, they have still underperformed equity markets. But this has not deterred Mr Stone from his holdings. Neither has the Argonaut strategy – one of the worst-performing funds in the industry in 2016.
Mr Stone said he was monitoring the Argonaut fund closely. He has allowed the fund’s weighting to dilute as a result of its negative returns, but insisted he was committed to the fund.
“Their investment strategy just hasn’t worked,” he said. “They have made some changes to their thinking and we’re happy to hold it in the short term. We are reviewing very closely, but like [that] the managers are trying to improve.”
Mr Stone said the Argonaut fund’s return was a drag on the aggregate performance of the portfolio, but added other holdings had started to come back strongly in 2017.
Last year the team also shifted 11 per cent from equity into a gold exchange-traded fund and Old Mutual’s Gold and Silver fund. Gold allocations performed for most of 2016 but took a sharp downward turn in the final months of the year.
However, Mr Stone said the Old Mutual strategy – which rebalances between gold and silver equities and bullion – rode this well. Since the beginning of 2016 it has returned 56 per cent.
In the managed portfolio service’s remaining equity allocations, Mr Stone said he was happy with holdings and had avoided getting involved in the widespread shift from growth to value stocks.
But the manager has kept faith in a core holding, the Miton UK Value Opportunities fund, which was rocked by the departure of star managers George Godber and Georgina Hamilton in April 2016.
Given current market levels, the manager said Fairstone would retain an equity underweight against its benchmark portfolio weightings until valuations dipped by 20 per cent or more.
