P1 Investment Management’s Will Dickson has cut back his exposure to Mark Barnett’s Invesco Perpetual High Income fund as part of a move to reduce risk in his portfolios.
Although Mr Dickson, the firm’s head of portfolio management, is positive on emerging markets – traditionally deemed a racier area for investors – he has sought to de-risk across both equities and fixed income.
In January the team reduced exposure to UK and international shares. This saw positions in the High Income fund, as well as the Newton Global Income and Schroder UK Alpha Income vehicles, being pared back.
“On balance we probably reduced risk and positioned out of equities, both UK and international,” Mr Dickson said.
This approach has also seen the team reduce a position in the Franklin UK Mid Cap fund.
He explained: “We have historically been fairly overweight with mid and small caps. They have held up surprisingly well given what has happened, [but] we felt it made sense if we are taking equity risk off.”
The manager did, however, increase exposure to emerging markets last year via the Schroder Asian Alpha Plus, Newton Asian Income, Somerset Emerging Markets Dividend Growth and Fidelity Emerging Markets vehicles.
Emerging market indices have experienced mixed fortunes since the US presidential election last November, with fears of both US protectionism and increasing dollar strength hitting stocks at the end of 2016, before subsequently receding this year.
The MSCI Emerging Markets index is up 6 per cent in 2017 in local currency terms as a result of this more optimistic stance.
Mr Dickson believes the asset class can remain attractive in spite of the threat of less favourable policies from US president Donald Trump.
“We wanted more of an overweight last year, just before [emerging markets] had quite a sharp rally,” he said.
“It’s been a little bit more turbulent, but the long-term relative valuation of emerging markets versus developed markets seems very attractive, where appropriate. The fundamentals are still there – [volatility] is politically driven.”
Fixed income has been another space where the team has exercised caution. Last year it removed index-linked gilt exposure by selling an iShares passive product, as well as cutting a position in Ian Spreadbury’s Fidelity MoneyBuilder Income fund, in a bid to limit duration risk.
Mr Spreadbury reduced duration in his fund in the immediate aftermath of the Brexit vote. This led to Fidelity deciding to merge away a reduced duration version of his fund, describing it as surplus to requirements.
But Mr Dickson said: “Its duration is something like six or seven years. That’s probably at the higher end for us.”
Meanwhile, the manager has joined other fund buyers in turning to alternatives as a source of diversification.
In the higher-risk elements of the nine-strong portfolio range, the manager has added to vehicles including City Financial Absolute Equity and James Clunie’s Jupiter Absolute Return.
He described the former as “pretty adventurous”. The fund was one of the worst-performing strategies of 2016, losing more than 10 per cent, but remains strong on a longer-term basis.