Following Gray’s decision to leave Miton in June, Jane was named as his successor on the £670m CF Miton Special Situations fund and the smaller CF Miton Strategic Portfolio, CF Miton Total Return and Miton Global Diversified Income funds.
Gray was renowned for his bearish views and kept a defensive, cash-heavy fund over the past few years. Although he had outperformed over the long-term and effectively protected against the downside during times of uncertainty, investors began to lose patience with his meagre returns during the recent rally.While Jane says he is not taking undue risk in the Special Sits portfolio, he has been steadily investing the large amount of cash he inherited from Gray.
“We are sympathetic to concerns towards extended equity valuations, even if valuations rarely give insight into timing,” Jane (pictured) said.
“As a result we are buying equities that are underpinned by more attractive yields in the UK, Europe and the US, most of which are large caps with diversified earnings streams.”
“This, combined with our existing positions in Japanese equities and Asia ex Japan equities, provides a broader spread across equity markets. Stock-specific risk is a focus for us, especially so during the earnings season, and this is reflected in the contained weight of any new positions.”
Gray launched CF Miton Special Situations in December 1997. It was the best performing portfolio in the IMA Flexible Investment sector while Gray was manager, with returns of 289.51 per cent.
Performance of fund vs sector Dec 1997 to June 2014
Source: FE Analytics
Gray also had a strong track record in falling markets, returning 7.26 per cent in the crash year of 2008 while the sector lost more than 25 per cent.
Despite his returns over the long-term, Gray’s relative performance waned significantly during his last couple of years as manager.
The manager told FE Trustnet on numerous occasions that the current market, due to mass central bank intervention and over-optimism within the investor community, had become dangerous. As a result, he kept a very defensive portfolio.
However, while a lot of investors appreciated his focus on capital protection, many others found it unacceptable that he lost money during his final two years in charge - a period when equities returned 40 per cent.
Performance of fund vs sector and index June 2012 to June 2014
Source: FE Analytics
There were already signs that investors had become disillusioned with the fund - its AUM shrank by more than £200m over the last 12 months.
It is important to note, however, that Gray’s decision to leave Miton was due to business reasons, not because of recent performance.
Jane took over the portfolio on 9 June this year, following Miton’s acquisition of his boutique firm, Darwin Investment Managers.
Jane had a very different view on the market to Gray and told FE Trustnet last year that investors who were sceptical about the bull market were just jealous that they had missed out on the rally.
Jane’s aggressive positioning meant that his PFS Darwin Multi Asset fund was a top quartile performer in the IMA Mixed Investment 20%-60% Shares sector last year, with returns of 13.24 per cent.
Performance of fund versus sector 2013
Source: FE Analytics
However, the fund has lost money this year. Jane told FE Trustnet in April that he was becoming more bearish in his outlook and felt a correction was a possibility unless companies’ earnings caught up with their share prices.
While Jane has reduced his new fund’s cash weighting by more than 13 percentage points over recent weeks, he is quick to point out that he isn’t using it to invest in overly risky assets.
“We have also raised our exposure to longer-dated government bonds to increase portfolio diversification.The longer end of the yield curve is traditionally more sensitive to rises in short term interest rates, but government bonds provide protection against a correction in equity markets.”
“Data remains king and investors will be looking for top-line growth, rather than earnings growth through cost-cutting. They will also be hoping for encouraging economic growth without inflationary pressures.”
“However, stronger growth and the promise of short rates remaining low cannot continue indefinitely, and diversification is essential.”
Other changes Jane has made to the portfolio include adding property exposure via REITs, scaling back its Japanese exposure, increasing exposure to UK and European large caps and disposing of various short positions in commodities and eurozone banks.
Jane has also swept all non-sterling cash deposits into sterling. Rob Morgan, pensions and investment analyst at Charles Stanley Direct, says it is a good move.
“Martin Gray had held cash in various currencies which, with the strong pound, hadn’t done him any favours,” Morgan said.
“Miton have had some pretty strong currency views, which are always difficult to get right. David Jane is concentrating on his main skill set which is different asset classes and he is his own man and will run the fund the fund the way he wants to run it.”
While Morgan rates Jane and applauds him for putting his own stamp on the fund, he says investors in the CF Miton Special Situations Portfolio should realise that it is likely to be a very different fund to what it was under Gray.
“It is certainly more in step with other multi asset funds than it was when Martin Gray was in charge, as he wasn’t afraid to go against the grain, as shown by his commodity shorts,” Morgan said.
“The fund now seems a bit more diverse and far less directional. I think it would be interesting to find out from David Jane about when he thinks the fund will perform best, because we all know when it would perform best when Martin Gray was in charge.”
CF Miton Special Situations has an ongoing charges figure (OCF) of 1.13 per cent.
