The investment director at Rowan Dartington likes the long-term approach of investment trust managers, and especially their ability and willingness to gear. Open-ended funds make up the bulk of his portfolio, however, including three recently launched products.
Cockerill (pictured) uses a core-satellite approach to investing, complementing no-nonsense funds with an eye on downside protection with more adventurous holdings. He invests almost exclusively in equities, though he has some exposure to fixed interest and alternative assets via two multi-asset portfolios.
To help offset the high trading costs associated with investment trusts, Cockerill builds up cash via a monthly savings plan, then puts this to work all at once. This, he says, helps him to keep track of exactly how much he has in each fund and also allows him to make tactical allocations.
Core diversifier
For his core exposure, the FE AFI panellist likes consistent, predictable managers who cause him few sleepless nights.
“At the top of the list is Invesco Perpetual Global Targeted Returns,” said Cockerill. “The results have been very good. I like the idea of having a multi-asset fund like this as my largest holding – especially when the outlook globally is as uncertain as it is today.”
Invesco Perpetual Global Targeted Returns attempts to deliver 5 cent in excess of cash with half of the volatility of equities over rolling three-year periods. It invests across all asset classes, using short and market neutral strategies to help offset market risk.
Source: Tim Cockerill
It’s early days, but risk-adjusted performance has so far been strong. FE data shows the £456m fund has returned 14.22 per cent since its launch in September 2013, putting it well ahead of its benchmark. It has slightly underperformed global equities over the period, though with a fraction of the volatility.
David Millar and his team are former managers of the £23bn Standard Life GARS fund, which has a very similar approach and objective to Invesco Perpetual Global Targeted Returns. The new launch has beaten its larger rival at its own game, weathering market sell-offs in the summer and autumn of this year much more effectively.
Performance of funds, sector and index since Sept 2012
Source: FE Analytics
“Invesco do things slightly differently and I’ve gotten to know the team better,” added Cockerill.
UK equity exposure
Next up on the list is another recently launched fund: this time a former Invesco Perpetual employee who’s set up shop elsewhere.
“Why Woodford? I’m looking for consistent and predictable performance and if there’s anyone who’s going to do that, it’s him,” said Cockerill, who has 8 per cent of his pension in the manager’s £4.3bn CF Woodford Equity Income fund.
“I really like the equity income story from a compounding point of view.”
Cockerill holds JOHCM UK Equity Income alongside Woodford’s large cap focused portfolio. He says the two funds complement each other very well, as Clive Beagles and James Lowen have more of a focus on cyclical mid-cap companies. It has a 5 per cent weighting in the portfolio.
FE data shows there is little overlap in the top-10 holdings of the funds, with only AstraZeneca appearing in both. Beagles and Lowen are significantly overweight the industrials sector, while Woodford prefers healthcare and tobacco.
JOHCM UK Equity Income is a top quartile performer in its IA UK Equity Income sector over three, five and 10-year periods, albeit with above average volatility. The growing reputation of the managers has led to significant inflows and at £2.2bn the fund has questionable flexibility to invest as much in mid-caps as it once could.
A 4 per cent holding in the Franklin UK Mid Cap fund ensures that Cockerill has sufficient exposure to the FTSE 250. Managed by FE Alpha Managers Paul Spencer and Mark Hall, the fund is number one in the highly competitive UK All Companies sector over the past decade, with returns of 311.05 per cent.
“It’s been a very good investment for me,” said Cockerill, who bought the fund around three years ago. “It’s had a tougher time recently but I’m more than happy to ride it out. The team targets high quality businesses which I like.”
As well as significantly outperforming, Franklin UK Mid Cap has operated with less volatility than its FTSE 250 (ex IT) benchmark over the past 10 years and has a lower max drawdown.
Cockerill gets his UK small cap exposure via the R&M UK Small Companies Equity fund and James Henderson’s Henderson Opportunities trust. Both have a 5 per cent weighting in his pension.
He said: “R&M is a small outfit but I like that. I’ve known Daniel Hanbury for many years and the recent arrival of Philip Rodrigs is also a big boost. It’s a high quality team and they’re very much at the forefront of UK small cap investing.”
“Again, I’ve known James Henderson for a very long time. Small and mid-cap cyclicals are his specialty. Having been invested in him a long time it can be a bit of a rollercoaster, but as long as you know that the trust is a great long-term option.”
Performance of trust, sector and index over 5yrs
Source: FE Analytics
Cockerill points out that the trust is currently on an 11 per cent discount, which is an added incentive.
The trust was on a slight premium in the middle of 2014. Cockerill says he seldom buys or sells closed-ended funds based solely on their premium/discount, though has acted in extreme circumstances.
Global equity exposure
Cockerill likes to be diversified across all equity markets regardless of his outlook. He pays no attention to the composition of benchmarks, concentrating more on the quality of fund managers rather than the attractiveness of regional markets. This, he explains, is why he has a natural overweight to UK-focused funds.
US funds currently make up 18 per cent of assets, split across three funds.
“I have 7 per cent in Artemis US Equity. Cormac Weldon has been around for a very long time and demonstrated his ability across a number of different cycles,” said Cockerill.
“He’s moved over to Artemis from Threadneedle and taken most of his team with him. He’s a manager I’ve followed for a long time.”
It’s well documented that US active managers find it more difficult to outperform their benchmarks than most. Cockerill highlights Weldon as one of the few he would back to do so over the long term. With returns of 167.44 per cent he has comfortably beaten his peer group and the S&P 500 over the past decade, though has fallen short of the latter over three and five years.
Weldon moved to Artemis after spending 18 years at Threadneedle. His £6.8m Artemis US Equity fund is large cap focused and has so far performed in line with its S&P 500 benchmark since launch last September.
Though Weldon’s departure from Threadneedle was a heavy blow, many fund pickers – including Cockerill – have decided to stick with his old portfolios.
“Threadneedle American has a 6 per cent weighting. I have followed the progress of the team and continue to rate the strategy that’s in place. It’s also a good way to diversify manager risk in this area,” he said.
“Threadneedle American Smaller Companies completes my exposure. I’ve used it a long time and think it’s an underused area. It’s not the most consistent of holdings but I’m very comfortable with it.”
Cockerill also has exposure to US small caps through a 5 per cent position in Invesco Perpetual Global Smaller Companies. The £689m portfolio has 32 per cent in the US, and draws on the best ideas of specialist small cap managers at the firm including Jonathan Brown and Adrian Bignell.
The fund is a top quartile performer in its IA Global sector over three, five and 10-year periods.
Though Cockerill doesn’t tend to make big asset allocation calls, one area he is considering adding to at the moment is Europe. He already has 6 per cent in Henderson European Focus and 4 per cent in JPM European Smaller Companies IT.
“UK investors are quite myopic about European equities. We like to go on holiday to Europe and eat the food but we tend to write off the economy and stock market,” he said.
“Yes, the economy is a problem, but on a company level I think it’s very underrated.”
“[Henderson’s] John Bennett has a great record and this is the most aggressive of his portfolios. I use the JPM trust to get my small cap exposure and like the fact it is geared.”
Henderson European Focus has five FE Crowns and is a top quartile performer since Bennett took over in 2010, as well as over one and three years. Jim Campbell and Francesco Conte’s JPM European Smaller Companies IT has a strong long-term record but has fallen further than most of its rivals in the last year, shedding over 12 per cent.
The trust is trading on a 13 per cent discount, which Cockerill says makes it attractive for long-term investors.
Baillie Gifford Japanese Smaller Companies completes his developed equity exposure. It is the standout performer in its sector, delivering top quartile returns and easily outperforming its MSCI Japan Small Cap benchmark over three, five and 10-year periods.
Emerging market exposure
Cockerill has 6 per cent of his pension in Angus Tulloch’s First State Asia Pacific Leaders fund, which he has held for more than a decade.
“I like the fact they use a conservative approach in a volatile asset class and are again very consistent and predictable,” he said.
The £7.8bn fund has consistently outperformed its peers with less volatility over the years, more than doubling the returns of its sector over the past five years, at 64.81 per cent.
Cockerill formerly held First State Global Emerging Market Leaders but sold his stake when it closed to new money. He has chosen FE Alpha Manager Nick Price’s Fidelity Emerging Markets as its replacement.
“The manager has proven himself to be more than capable. It does things a little differently to First State and is likely to be more volatile over the long term,” he said.
FE data shows the £766m fund has a marginally better record than its First State rival over the past three years, though has been more volatile.
Performance of funds, sector and index over 3yrs
Source: FE Analytics
Price has a big preference for consumer products, which make up 40 per cent of the portfolio. A natural bias to Africa also differentiates him from many of his rivals.
Specialist exposure
The final 14 per cent is split between three specialist portfolios.
“RIT Capital Partners is a multi-asset global growth portfolio, but is unconventional. It uses techniques that none of my other funds use, aside perhaps from Invesco Global Targeted Return,” Cockerill said.
“It’s very well diversified and is also able to gear. It invests in private equity – both direct and through funds – and uses absolute return strategies. I also like the fact Lord Rothschild is still involved in the running of it.”
RIT Capital Partners tends to outperform during falling markets, as it did in both 2008 and 2011. The trust has underperformed cumulatively over three, five and 10 years, though Cockerill says its diversification benefits make it a good option regardless.
Polar Capital Technology IT and Impax Environmental Markets IT complete Cockerill’s portfolio. They have a 5 and 4 per cent weighting, respectively.
“Technology is forever changing, but there are always winners. [Polar Capital’s] Ben Rogoff has been very good at identifying these,” he said.
“I really like his approach. When a new trend comes along, he tends to take positions in three or four companies rather than just one, seeing them as a unit within his portfolio. He knows how difficult it is to get the right one. I like that in a manager – knowing where his limitations are.”
Performance of trust and sectors over 10yrs
Source: FE Analytics
Polar Capital Technology IT has returned more than any open or closed-ended tech fund in the UK over the past decade, at almost 235 per cent.
Cockerill says part of his motivation for investing in the Impax trust is because of its positive effect on the environment. However, he says he is confident that it will make him strong returns over the long term. FE data shows it has more than doubled investors’ money over the past decade, despite losing more than 25 per cent in 2008 and 2011.
“The portfolio is split into waste, water management and alternative energy. It has a very good specialist team and I believe this will be a very important theme in the coming years. China knows it has a lot of problems in this area and a fund like this could well benefit,” he said.
Impax is on a 10.8 per cent discount.