The Walker Crips model portfolio service team has continued to back Neil Woodford’s flagship fund as a defensive strategy despite the manager’s increased focus on cyclicals.
Andrew Morgan and Gary Waite, who work on the firm’s risk-rated managed portfolio service, have kept a neutral allocation to equities as markets hit record levels in the US and UK. However, concerns about these valuations have prompted them to renew a focus on funds with defensive and diversifying characteristics.
“The market doesn’t seem to be factoring in some of the negatives in terms of inflation and some economies cooling,” said Mr Waite. “We are positioning for markets [potentially] trading down.”
As such, they have added to a position in the Woodford Equity Income vehicle and held conviction in Columbia Threadneedle’s UK Equity Income fund, while reducing exposure to JOHCM UK Equity Income.
Earlier this month, Mr Woodford made a shift towards more cyclical names, investing in the likes of Lloyds and housebuilders in anticipation of an economic upturn. But the Walker Crips duo said they still viewed the manager’s portfolio as one for a cautious investor.
“Despite the Woodford fund’s recent pro-cyclical changes, we still view it as defensively positioned overall – and for us, this is a crucial part of its appeal,” said Mr Morgan.
“If you look at Woodford that’s more defensively minded and likely to outperform in market falls.”
The pair have also been diversifying elsewhere in their equities allocation, looking for funds with a different investment style or thematic focus.
This approach has seen them add the Goldman Sachs Global Small Cap Core Equity Portfolio and Henderson Technology offerings to the range.
“It has got quite a healthy prognosis in terms of the job losses [due] to technology,” said Mr Morgan of the latter.
Within their alternatives exposure, they continue to use absolute return vehicles from the likes of Aviva Investors, but have also introduced Jupiter manager James Clunie’s fund.
“We see that as a different option in that sector with low correlation,” said Mr Morgan.
The team also overhauled the range’s property exposure in light of the trading suspensions and now focus on property equities.
“You can imagine a scenario where those issues return to the fore, should Brexit hit bumps in the road,” Mr Morgan said.
These concerns prompted them to sell out of L&G UK Property – a fund not suspended but which did implement downwards valuation adjustments – opting instead to invest in the Premier Pan European Property Share and iShares MSCI Property products.
Changes to the Wealth Management Association’s benchmarks, to which the Walker Crips portfolios are closely aligned, have allowed the managers to shift away from gilts, while upping exposure to strategic and corporate bond funds.
They have also added to vehicles with a short-duration approach, including Artemis Strategic Bond, Aviva Strategic Bond and Royal London Short Duration Global High Yield Bond.
