Willis, who is head of research at Whitechurch, says he and his colleagues are bullish on the global economic recovery and because of that they have a very high developed market equity weighting within their client portfolios. "We believe in the recovery, we know it won’t be smooth or steady, but there will be a recovery," he said.
"We will soon be another year on from the financial crisis and both the economies and companies are getting their houses in order. Corporates have been doing this for a long time, by cost-cutting and balance sheet repair."
"The next step is to start using that cash on the balance sheet to increase earnings," he added.
Willis says that because of Whitechurch's client base, it has a real focus on income-producing funds.
However, given his and his colleagues' bullish outlook, they are adding a number of tactical value plays to their portfolios to complement their longstanding core holdings.
Willis highlights three aggressive developed market funds he is using for this purpose.
Invesco Perpetual European Equity Income
Willis has long been a fan of FE Alpha Manager Richard Pease’s Henderson European Growth fund. However, he says that he has also started to use the higher risk £137.8m Invesco Perpetual European Equity Income fund to sit alongside it.
Although income funds usually tend to be more defensive, Willis says it is aggressively positioned in peripheral Europe. He adds this could be very good for it in the next couple of years.
"Europe is emerging out of recession, according to figures last week, but there are clearly still inherent problems there," he said.
"However, I recently spoke with Stephanie Butcher who runs the Invesco Perpetual European Equity Income fund. She is focused on domestic markets and has a lot in the periphery."
"You are paying a big premium for quality growth companies such as Nestle, but she is looking at different companies and regions and buying very cheap areas of the market."
"Her reasoning is that if Europe continues to see growth, those areas will re-rate significantly. These are not poor companies though, but they are companies that are based in out of favour areas in the likes of Spain or that are simply more cyclical," he added.
Butcher has managed the Invesco Perpetual European Equity Income fund since January 2011.
According to FE Analytics, it is the best-performing portfolio in the IMA Europe ex UK sector over 12 months, with returns of 51.66 per cent.
Performance of fund vs sector over 1yr
Source: FE Analytics
It isn’t one of the biggest income payers, however, given that its yield is just 2.61 per cent.
Willis says that while Pease’s fund is the type of portfolio that should be held for the very long term, the Invesco Perpetual offering is well-placed to shoot the lights out over the next two to three years.
The fund has an ongoing charges figure (OCF) of 1.72 per cent and requires a minimum investment of £500.
Legg Mason Capital Management Opportunity
"We are doing the same in the US," Willis continued. "We have held the JPM US Equity Income fund as our core holding as the companies it invests in tend to be quality defensives. However, we have also been investing in Bill Miller’s Legg Mason Capital Opportunity fund."
"He invests in sectors and companies that he believes will benefit from an economic recovery and increased consumer spending; for instance, areas such as financials or travel and leisure."
"Those sectors have been out of favour, but if we do see a continued recovery in the US then those sorts of companies should do well," he added.
Bill Miller is arguably one of the most successful active fund managers in the US market. He is renowned for beating the S&P 500 15 years on the trot between 1991 and 2005.
The $194m Legg Mason Capital Management Opportunity fund, which is domiciled in Ireland, was launched in February 2009. It is the best performing fund in the IMA North America sector over that time with returns of 172.06 per cent. It beat its benchmark – the S&P 500 – by more than 70 percentage points.
Performance of fund vs sector and index since Feb 2009
Source: FE Analytics
The fund tends to invest towards the lower end of the US market cap spectrum and its largest industry weighting is to financials, at more than 30 per cent of total assets.
The fund’s OCF is 1.82 per cent.
Schroder Income Maximiser
Willis says he is using the £1bn Schroder Income Maximiser fund, which is headed up by Thomas See, to add risk within his UK equity allocation.
"We have held the Trojan Income fund as our core UK position, as it has performed well by investing in very boring, quality companies. However, we are now also using the Schroder Income Maximiser fund."
"It is more value-orientated than others in the sector and concentrates on more risky higher yielding stocks," he added.
Schroder Income Maximiser pays out a hefty yield of 6.95 per cent. Although See primarily invests in long equity, he has the ability to use derivative instruments in order to generate extra income.
The fund has performed roughly in line with the IMA UK Equity Income sector and the FTSE All Share over the past few years. It is a second-quartile performer over 12 months, for instance.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
However, Willis says the fund’s exposure to more economically sensitive stocks means it should benefit from an improving economic backdrop.
Like Miller’s fund, Schroder Income Maximiser’s largest weighting is to financials. These make up more than 30 per cent of the fund’s assets, with the likes of Lloyds, RBS and Barclays all featuring in See’s top 10.
The fund has an OCF of 1.66 per cent and requires a minimum investment of £1,000.
