Schroders’ Marcus Brookes has continued to shift to value offerings at the expense of growth funds despite the former’s lacklustre performance this year.
The multi-manager moved into value in late 2015, ultimately benefiting from the decision during the second half of 2016 when the style outperformed.
But 2017 has been a different story, with the MSCI World Growth index’s 10 per cent gain outperforming its Value peer’s 4 per cent rise year to date.
Yet the Schroders team has added to value holdings in the firm’s MM Diversity offering, with a particular focus on Japan and Europe via Stephen Harker’s Man GLG Japan Core Alpha fund and the Invesco Perpetual European Equity vehicle run by Jeffrey Taylor.
“We were early as ever,” Mr Brookes said. “We have been adding but only in a small way as we were strongly there already. We’re not outright value, so there are not many bullets left to fire.
“We [have] sold down some weighting in our growth holdings to top up value, along with using a little bit of cash.”
While Mr Brookes has made relatively minor adjustments to the majority of his value positions this year, he said he was considering putting more into both Japan and Europe.
On a three-year horizon the funds have only marginally outperformed their respective benchmarks – mainly due to the rotation seen in the second half of last year.
The Man GLG strategy, which already makes up 4.3 per cent of the Schroders fund, had previously underperformed the Topix index for most of 2016, suffering outflows as a result.
Mr Brookes was undeterred, however. “The value style of investment is a lot more volatile than quality growth, so we’re not fully invested as the volatility of the portfolios would pick up and we like to have sensible levels of risk,” he said.
“We are overweight but have some more room to go if we need to. In the event of a pullback, [we will] add to our holdings.”
Mr Brookes said he retained a significant cash weighting across his seven-strong multi-manager range, at the expense of government bonds and investment grade credit.
The Diversity strategy has more than 20 per cent in money markets courtesy of a Schroders sterling fund, and the vehicle’s cautious stance has hurt returns relative to peers over the past five years.
Mr Brookes said he was trying to keep “his powder nice and dry” in the event of a bond market sell-off, which he said was inevitable given yields were pricing in such negative economic sentiment.
“We are keen that we have the portfolio for the right environment,” he said.
“Our reading of the economic backdrop is unchanged. Sentiment was very high coming into the first quarter, but we’ve had a bit of disappointment in the politics, that’s why growth has done well. We haven’t felt the need to change, as we’re pointing in that direction already.”