Following a phenomenal 2013 when the average fund in the IA UK All Companies sector gained more than 25 per cent, 2014 was a year to forget for the large majority of UK equity investors.
Factors such as profit-taking from 2013’s gain, growing macroeconomic woes such as weakness in the eurozone, the possibility of higher interest rates, geo-political risks, the strength of sterling and the falling oil price all contributed to the FTSE All Share’s flat returns last year.
Performance of indices since Jan 2013
Source: FE Analytics
However, though concerns still persist about the immediate outlook for UK equities given it is an election year and most of last year’s headwinds that dampened returns are still present, Ashworth-Lord has been piling back into the UK equity market.
“We enter the new year with just 1.6 per cent of the portfolio held in cash,” Ashworth-Lord (pictured) said. “This is the most invested the fund has been since December 2011.”
According to FE Analytics, the Premier ConBrio Sanford Deland UK Buffettology fund’s weighting to the money market was above 8 per cent for most of 2014, peaking at 13.7 per cent in May. Though the manager is now 98.4 per cent invested, his cash exposure was more than 7 per cent in December.
He continued: “I do not expect the year ahead to be any less challenging than 2014 but in some respects we might be better placed.”
“Last year, we were coming off the back of two consecutive 30 per cent plus annual performances. Whilst the majority of our investee companies continue to perform well, the consequent PER expansion in 2012 and 2013 left their operational performances playing catch up.”
“To some extent, this has now happened,” Ashworth-Lord added.
The manager’s decision to hold a high level of cash did help the fund’s performance during last year’s difficult market conditions. Our data shows the fund was a second quartile performer in the IA UK All Companies sector with returns of 1.46 per cent, narrowly outperforming the index in the process.
It was also top quartile for its downside risk and annualised volatility last year, though its maximum drawdown, which measures the most an investor would have lost if they had bought and sold at the worst possible times, was greater than both the sector average and the index.
Nevertheless, the fund’s outperformance last year is all the more impressive given that it is effectively a mid and small-cap portfolio, which were two areas of the market that had big drawdowns in 2014.
Performance of fund vs sector and index in 2014
Source: FE Analytics
Ashworth-Lord says the major reason why he held cash was due to his concerns that valuations had become very stretched.
“The further we got into 2014, the more it became apparent to me that this was a year in which to preserve capital,” he said.
“We experienced increased volatility and three mini corrections in August, October and December that opened up investment opportunities. Having allowed cash to build up over the summer, I was well placed to take advantage of this.”
“Meanwhile, the macro picture was clouded by signs of deflation in the eurozone, the Scottish referendum, geo-political tension in Russia, Ukraine and the Middle East, and pressure on commodity prices, most recently oil.”
There are number of experts who are still downbeat on UK equities following last year’s issues.
Star manager Richard Buxton, who heads up the Old Mutual UK Alpha fund, recently told FE Trustnet that investors should expect very little from the UK equity market in the first half of 2015 as uncertainty will increase in the build-up to the general election in May.
“It is going to be very rocky and very volatile. Volumes in the markets are still low and there is a lot of pencil sucking among the major institutions with no one doing very much at the moment. Electoral uncertainty is clearly not helpful to corporate competence, investment and planning,” Buxton (pictured) said.
Neptune’s Robin Geffen took it a step further as he told FE Trustnet in December that he had no exposure to the UK across his global portfolios due to mounting political risks.
“Markets don’t like uncertainty and there is massive uncertainty in the political landscape in the UK. Massive uncertainty,” Geffen said.
There are also more macroeconomic concerns in the market, with certain experts warning about the impact of tighter monetary policy on risk assets in the US and possibly in the UK.
However, Ashworth-Lord thinks these worries have now been overdone and says investors should be looking to top up their exposure to the UK.
“In conclusion, I am most heartened by the continued ‘weekend worrying’ that results in commentators talking about reasons for the market to crash in 2015. Market tops are usually characterised by euphoria, not despondency,” he added.
Ashworth-Lord launched the £20m Premier ConBrio Sanford Deland UK Buffettology fund in March 2011.
According to FE Analytics, the fund has been a top quartile performer in the highly competitive sector over that time with returns of 64.57 per cent. As a point of comparison, the FTSE All Share has returned 36.56 per cent.
Performance of fund versus sector and index since March 2011
Source: FE Analytics
Though it only has a short track record, the fund has outperformed both the sector and index in every calendar year since its launch, turning in top quartile returns in 2012 and 2013.
As his fund’s name suggests, Ashworth-Lord follows the investment principles of the legendary Warren Buffett. In February 2009, he was given exclusive rights to Buffett name and a 10-year licence period to copy the investor’s distinctive long-term, value-orientated approach within a UK equity fund.
The manager has largely invested his cash by topping his current holdings. Premier ConBrio Sanford Deland UK Buffettology ongoing charges figure is 1.9 per cent, though the manager expects that to fall as the fund’s AUM grows.
