The AFI panellist says for those who can take a medium level of risk greater value can be found over the next two years in equity exposure, particularly in the US and UK and so he has been advising investors to take profits on bond and multi-asset positions and take more exposure to equities.“Historically we have had really positive returns from multi-asset funds in clients’ portfolios but the issue is the managers can be quite conservative which can mean we are not quite hitting the potential,” he said
“No one can say equities are cheap but taking the longer term perspective compared to other asset classes they look more attractive than holding funds with managers that have a more cautious view.”
“We think there is allot more opportunity in the equity or property space over the next 18 months to two years.” In particular Wise has been trimming exposure to three well-known defensive funds: Miton Special Situations and JP Morgan Cautious Managed and Newton Real Return.
Two of the funds - Miton Special Situations and JP Morgan Cautious Managed – have lost money over the last 12 months, 4.6 per cent and 0.09 per cent respectively, while JP Morgan Cautious Managed returned 2.47 per cent over the same period.
Performance of funds over 3yrs
Source: FE Analytics
Wise says his change of tack has been for both push and pull reasons.
“The macro numbers, and strong political will in the US and lots more M&A have caused the main indices to have been riding high but underlying that there are lots of opportunities for the specialist managers to make strong returns.”
He also says that clients have been willing to increase in their risk allocation.
“So we’ve decided that we are not completely moving out of multi-asset funds but we’ve been trimming them mover the past few months.”
“It still ok to hold some but you don’t want to miss out on that potential for better growth.”
Wise says he has been adding JOHCM UK Opportunities and Standard Life UK Equity Unconstrained for greater equity exposure to US and UK equities.
Standard Life UK Equity Unconstrained has returned 61.83 per cent over three years, beating its sector average and benchmark.
The fund, managed by Ed Legget, aims to buy up undervalued stocks when the market is doing poorly and wait for their medium-term cyclical appreciation.
Following the financial crisis, Standard Life UK Equity Unconstrained has had an excellent track record, due to Legget's decision to buy into the higher risk, often out-of-favour areas of the market.
JOHCM UK Opportunities also outperformed the sector and benchmark over three years but has dropped off a little in the past 12 months returning less than its IMA UK All Companies’ sector average.
Over three years it returned 37.61 per cent compared to a sector average of 31.16 per cent and a rise in the FTSE All Share of 26.79 per cent.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
For exposure to global equities he has been adding to positions in M&G Global Dividend fund and Newton Global Higher Income.
The £8.5bn M&G Global Dividend fund has outperformed its sector and benchmark over three years returning 31.78 per cent to investors compared to an IMA Global sector average return of 18.7 per cent. The MSCI World index rose 23.02 per cent over the same period.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
However over the year the fund has underperformed its sector with a return of 3.46 per cent compared to an average return in the sector of 4.88 per cent.
The fund run by FE Alpha Manager Stuart Rhodes has been one of the best performing global portfolios since its launch in July 2008 and has attracted more than £2.4bn worth of inflows over the last 12 months.
Several analysts have recently raise d the question over whether its rapid increase in size has made outperformance more difficult.
Wise advises that investors use a combination of the four funds in addition to trackers of major indices in the UK and US, namely the FTSE 100 or FTSE All Share and the S&P 500.
He says he is still interested in emerging markets but advises use of the asset class only as a small diversification.
“Clients are still quite confident to take on emerging market exposure but I only advise a small amount,” he said.
“Where we have added some exposure [in emerging markets] we have been very selective. We like the Schroder Asian Income fund because it has a good strong dividend and a potential for growth as well.”
Wise is also interested to return to European equities but says he is waiting for better news before buying directly into a fund as in more inclined to take exposure through a fund of funds or multi-asset manager.
