Investec Wealth & Investment is encouraging its investment team to turn towards UK special situations funds and other value plays as part of a shift away from equity strategies focused on quality stocks.
Head of fund research Andrew Summers said the firm’s investment managers were moving away from a long-term bias to quality stocks and the funds that buy them – which could benefit some of the big names in value investing.
“We don’t want all our eggs in one basket,” he said. “Wealth managers like us always have a bias towards quality [stocks and funds] as private clients like the security and stability.
“But over the past few months we have been encouraging investment managers to make sure they are not too overweight that part of the market… and [rotate] into value and away from bond proxies, which have done well but may do less well in the years ahead,” he added.
This is likely to lead to changes in portfolio composition at Investec W&I. Its tactical asset allocation is currently slightly bearish on UK stocks, neutral on US, with positive biases towards Europe, Asia and Japan.
Mr Summers said the team – which analyses more than 300 funds – was now looking at shifting UK exposure towards value stalwarts such as Ben Whitmore’s £1.5bn Jupiter UK Special Situations fund, and Alastair Mundy, who manages Investec Asset Management’s £1.1bn UK Special Situations strategy. Mr Summers described Mr Whitmore as a “sensible manager” with a keen eye on valuations and Mr Mundy as “truly contrarian”.
In the US, Investec W&I is preparing to allocate more to the $1.4bn (£1.2bn) Vulcan Value Equity strategy – a “classic discount to intrinsic [value]” fund. The offering has struggled recently, but was praised by Mr Summers for its tendency to buy beaten-up stocks.
“Looking at three-year past performance is never a good way to pick funds and today it is worse than normal given we think there will be a style rotation,” he said. “We’re happy to move into funds that have had a tough time because it demonstrates a consistency of valuation discipline that has not served them well [recently], but will over the next few years.”
Similar moves in Japan have meant the team is now looking at the value credentials of Man GLG’s Core Japan Alpha fund and Baillie Gifford’s Japan growth strategy. In Asia, where the team holds an array of Schroders strategies, it is now set to add to Jonathan Pines’ $2.2bn Hermes Asia ex-Japan fund as a value play.
Investec W&I’s strategic asset allocation remained bearish on UK government bonds, but holds some, alongside gold and absolute return funds, as insurance policies.
“With myriad risks to insure against you need myriad insurance policies,” Mr Summers explained.
The team is also pondering a move into Brevan Howard’s BH Macro investment trust. Mr Summers acknowledged the vehicle has had a tough couple of years, but pointed to more positive near-term returns. The vehicle gained 5.7 per cent in 2016 after a strong end to the year.
Mr Summers’ interest is based on a potential tender offer by the company, along with a significant fee reduction, as the trust moves away from the traditional ‘2 and 20’ hedge fund fee to a flat 0.5 per cent.
