What about manager fund choices in response to the crisis? Marina Gerner writes.
The coronavirus pandemic continues to rattle stock markets, with major economies in lockdown to save lives. But long-term investors know that markets eventually recover from heavy falls.
Here, our multi-manager panel reveal their current bull and bear points. They talk about the new funds they have bought, those they have increased their holdings in and the ones they have trimmed or sold.
Bull point: If the economic lockdown is shorter than expected, supportive monetary and fiscal policy could be tailwinds, but we still see caution as more prudent at present.
Bear point: In the coming months the true scale of the virus-driven shutdown on global economies will become apparent, and the question is how long we will be in a recession. We see defensiveness and diversification as priorities over trying to time a bottom.
New position: There is a place in portfolios for traditional hedging assets such as gold, which we access through both physical gold and gold miners,” says Akbar. She invested in the Investec Global Gold fund to gain exposure to this safe-haven asset. She says the fund is managed by an experienced team who allocate portfolio assets to a diversified mix of global gold mining company shares. The co-managers can also allocate to physical gold ETFs for added diversification.
Increased: “We hold a number of alternative strategies within multi-asset portfolios at Fidelity, and many of these have been working well through this period of market instability,” she says.
One example is Assenagon Alpha Volatility fund, an investment strategy specifically designed to profit from rises in market volatility. “This position has done its job; while strategies like this may have underperformed in recent years as markets have continued to generate positive performance, they can provide an important cushion in risk-off periods like this.”
Trimmed: At the moment Akbar doesn’t think that the US equity markets are the best option for allocating cash, although she says the Schroder US Mid Cap fund is likely to make a compelling case for investment once there is some clarity on whether the worst of the virus is behind us. “The skilled team specialises in the mid-cap segment of the market because it is frequently mispriced, and given the heightened volatility they will be working hard to uncover the best opportunities.”
Premier Miton Investors
Bull point: The dire economic consequences of the Covid-19 pandemic and subsequent lockdowns have been clear for some time, and as always is the case have already been discounted by financial markets. That said, the performance of global equities would have been much worse if it had not been for unprecedented monetary and fiscal stimulus by central banks and governments.
Bear point: Equity investors who rely on dividends have been hit particularly hard, with some companies being forced to suspend income payments, while many others have chosen to do so to preserve cash on their balance sheets.
New position: Hambidge has added Sanlam US Absolute Return fund to a number of his portfolios. He says this is a relatively new fund which looks to take advantage of perceived pricing anomalies within US equities and does not rely on the stock market as a whole to move higher. “Early results have certainly been encouraging and we believe that the fund can produce good risk-adjusted returns in the years ahead.”
Increased: Having reduced his corporate bond exposure going into the crisis, he has since been adding back to funds that are not taking on much interest rate risk and where he is now being paid more as a result of the recent fall in prices. One such fund is TwentyFour Dynamic Bond, where he is confident that the “highly experienced team will be taking full advantage of what has been one of the most stressful periods for corporate bond markets in living memory”.
Sold: Elsewhere, he took advantage of strong performance in corporate bonds earlier in the year to sell his holding in the Royal London Corporate Bond fund. “This has been a long-term position in our income producing mandates and has performed very well, but we felt gains going forward were likely to be much lower,” says Hambidge.
Bull point: Covid-19 is not expected to result in as prolonged a downturn as the financial crash of 2008/09. Central banks and governments have committed to monetary and fiscal measures; that’s positive for markets and economic recovery.
Bear point: Uncertainty over the duration and severity of the global recession due to Covid-19. Corporate failures and rising unemployment could prolong the downturn. Corporate earnings for 2020 are likely to be significantly lowered.
New position: BH Macro is a rare beneficiary of the market downturn. “BH Macro is wholly invested in the Brevan Howard Master Fund, which aims to exploit opportunities in interest rates, foreign exchange and volatility,” he says. The fund has been short on equities, long on the dollar and has favourable interest rate positioning, all of which have benefited performance.
Increased: Hewitt has added to his holding in the Allianz Technology Trust. With markets globally down by anywhere between 20% and 30% during the first quarter, a trust investing in higher-rated technology companies would be expected to be badly affected in the downturn. The reverse has happened, and the shares gained 3% over the quarter. “With so much home-working and the population of most developed countries remaining at home, the importance of modern technology has become apparent,” he says. “This trust is a core holding for the long term.”
Trimmed: Hewitt sold out of the BlackRock Frontiers investment trust. While he liked the idea of using a closed-ended fund to gain diversified exposure to equity markets, he notes that “in practice performance was lacking”. Frontier markets have lagged behind emerging markets over the last five years. “BlackRock have a well-resourced team and are leaders in this area; however, performance has not come through and institutional investors have continued to avoid the area,” he says.
Bull point: The Chinese Caixin General Manufacturing PMI data released for March was strong at 50.1, surpassing economist expectations and signalling that China’s manufacturing sector has moved back into expansionary territory. Supply chains remain under pressure but the ability of the Chinese economy topick up the reins so quickly from where it left off is positive for the global economy.
Bull point: The fall-off in US employment activity has been swift and devastating. Corporate profitability will be materially impaired despite the US administration’s attempts to support businesses.
New position: Within his ESG portfolios, Sriharan is more actively targeting opportunities that attempt to solve problems caused by global issues. The Fidelity Waste and Water fund has a thematic approach where the underlying companies are inherently of a growth orientation, reflecting a high element of innovation that is embedded into the business model.
Increased: Sriharan has increased his holding in Slater Growth. “We continue to maintain conviction in the manager Mark Slater, who has produced top-decile returns over 10 years,” he says. The focus on fast-growing, high-quality companies means the fund has a material bias to small and medium-sized firms. Although this leads to relatively higher levels of volatility, “it is precisely through this concentration and conviction that the fund manager has historically created exceptional returns in the long run for investors”.
Sold: He has sold the Odey Absolute Return fund. “Ultimately the fund was unable to deliver a return profile that was commensurate with the level of volatility it was exhibiting,” he says. The IA targeted absolute return sector has struggled over the past five years and this fund has been one of the weaker constituents.
Jordan Sriharan is an investment director at Canaccord Genuity Wealth Management. He previously worked at Mercer, Fidelity Investments and the Wellcome Trust.
David Hambidge is head of multi-asset investment at Premier Miton Investors. He helped set up the fund-of-funds operation in 1995 and is regarded as one of the UK’s most experienced multi-managers.
Ayesha Akbar is a portfolio manager in Fidelity’s multi-manager team. Prior to joining Fidelity, she worked at Barclays Wealth, where she was instrumental in helping establish the firm’s multi-manager business.
Peter Hewitt is a director and investment manager with the BMO global equities team, and fund manager of the BMO Managed Portfolio Trust, where he specialises in investment trusts.