Tcam goes cautious in ‘uneasy bull market’

Tcam goes cautious in ‘uneasy bull market’

The “uneasy bull market” in equities has prompted Tcam’s investment team to use put options and volatility-linked instruments in a bid to protect its fund of funds range.

Duncan Blyth, the wealth manager’s investment research director, cited high valuations as a reason for exercising caution in the firm’s £33m Growth and £23m Income portfolios, as well as its £39m Absolute Return product.

“We do think that we are in an uneasy bull market,” he said. 

“Assets are elevated, so we are taking a step back. We are trying to make [portfolios] more defensive where we can.”

His comments come after a number of major indices, particularly in the US, reached fresh highs in recent months. But the team has reservations about holding cash as an alternative to shares.

“There could be a sharp upward movement, so just simply to raise cash is a bit of a concern,” Mr Blyth said. 

“We thought it’s better to remain fully invested.”

As a result the team has bought a put option on the S&P 500 in both its Growth and Income vehicles, effectively reducing equity exposure by around 15 per cent in each, as a form of protection against a market fall. 

In the Absolute Return offering, the team has bought a listed instrument linked to the CBOE Volatility, or Vix, index, so the fund benefits if volatility increases.

In other changes, the team has started moving away from other popular areas, such as inflation-linked bonds, despite forecasts that UK consumer prices index inflation will reach 3 per cent by the end of the year.

“We are reducing exposure to linkers; there’s duration risk inherent within linkers,” Mr Blyth said.

The team is instead hoping that rising inflation will boost government bond yields and therefore aid financial services firms. 

It is increasing exposure to both debt and equity-focused financials funds, adding vehicles such as the BlueBay Financial Capital Bond fund and Rob Burnett’s resurgent Neptune European Opportunities.

Mr Burnett’s fund also satisfied another shift in the Tcam strategies. The team has moved into value stocks using a variety of funds, including one of its own unitised fund offerings.

“We thought European value and financials looked attractive,” Mr Blyth said.

“We also like financial debt, which plays quite well with the value theme. 

“Capital bases are stronger and the regulatory burden is lessening.”

However, profits have been taken from some value names. In the Income and Growth funds, for example, M&G’s Global Dividend offering has been entirely sold after a bout of strong performance.

“We took money out of the fund, which was quite highly invested in energy and resources,” said Mr Blyth. 

“We moved that [money] into Legg Mason Martin Currie Global Equity Income. Mark Whitehead is a very good income manager, who uses all the tools to hand.”

Meanwhile, in its Absolute Return multi-manager product, the team dropped names such as SLI Global Focused Strategies, Standard Life Investments’ high-octane version of Global Absolute Return Strategies (Gars), opting instead for JPM Global Macro Opportunities.