James Sullivan (pictured) and Martin Gray have started to build their new portfolios at Coram Asset Management, returning to previous themes such as Japanese equities but also looking to riskier parts of the market like beaten up mining stocks and emerging markets. Sullivan launched Coram Asset Management - a fund management business within RC Brown Investment Management - last year and soon brought onboard his former Miton co-manager Martin Gray and unveiled a trio of funds.
The duo, who were known for their cautious approach to markets when they ran Miton’s multi-asset offerings, will manage the Coram Global Balanced, Global Defensive and Global Opportunities funds with an unconstrained, top-down investment approach.
Coram Global Balanced launched on 22 December, while the other two launched two weeks ago, and FE Trustnet can now reveal some of the funds and individual stocks that have made it into the portfolio’s top 10.
Source: Coram Asset Management
It must be stressed that this is very much a work in progress: Sullivan and Gray have not fully invested the portfolio and are holding onto a decent slug of cash to invest when the right opportunities emerge.
“It has been wonderful having an opportunity to start over with a fresh canvas. With that fresh start in mind, we are mindful not to go head first back in to the markets, instead opting to stagger investments when opportunities are more apparent,” Sullivan said.
“In isolation many ‘top 10’ lists appears to be an eclectic mix, but from a thematic perspective it blends together as a nice foundation for the portfolio – and offers us building blocks from which we intend to build out the portfolio.”
“We maintain a watch list of themes and investments as long as one’s arm and we’re excited about bringing more risk and excitement into the portfolio at lower levels. Themes such as Japanese property and ASEAN equity are within touching distance.”
As the above table shows, Coram Global Balanced has two funds giving exposure to Japanese equities - iShares MSCI Japan and Coupland Cardiff Japan Alpha.
The first fund tracks the MSCI Japan index and as such gives exposure to familiar Japanese equities such as Toyota Motor, Mitsubishi UFJ Financial Group, Honda Motor, Sumitomo Mitsui Financial Group, Hitachi and Canon. Its largest sector weightings are to consumer discretionary, industrials and financials.
The five FE Crown-rated Coupland Cardiff Japan Alpha fund, which has been managed by Jonathan Dobson since launch in April 2007, has become a popular fund among multi-managers. It builds its portfolio around three themes - fundamental opportunities, special situations and gems - and this has paid off over recent years, as the below graph shows.
Performance of fund vs benchmark over 5yrs
Source: FE Analytics
Coupland Cardiff Japan Alpha is more volatile and has a higher maximum drawdown than both the Topix and its average peer. However, it can perform very well in rising markets - its maximum gain over the past seven years is 90.48 per cent, compared with 62.51 per cent for the index and 47.31 per cent for the sector.
Coram Global Balanced has also been looking for “pockets of UK value”. The fund has positions in banking group Standard Chartered and supermarket giant Sainsbury's within its top 10.
Standard Chartered is down about 25 per cent over the past year after issuing a series of profit warnings. The bank is seen as being more exposed to commodities than many of its peers and has suffered as the price of many, including oil, iron ore and copper, have slumped. However, on a price-to-book basis it is now at its cheapest since the late 1980s.
Meanwhile, Sainsbury's has fallen more than 20 per cent in the last 12 months. The supermarket chain’s shares dropped to an 11-year low in January after it reported that sales over the Christmas period had declined for the first time in a decade.
The fund also has “modest positions” in conviction-led themes where weakness has been seen in recent times. One of these themes is emerging Asia and Latin America, with three funds focusing on these areas making it into the top 10.
Dale Nicholls’s five crown-rated Fidelity China Special Situations investment trust has turned in good numbers since the manager took over from the veteran Anthony Bolton in April 2014, advancing 32.19 per cent while the MSCI gained 17.20 per cent.
Performance of fund vs benchmark and sector over manager tenure
Source: FE Analytics
The fund is overweight areas such as consumer discretionary and information technology, which are naturally beneficiaries of the country’s expanding middle class and efforts to modernise its economy, while being underweight banks, which many investors are cautious about given issues such as high number of non-performing loans.
“We have been tentatively building our allocation to domestic China in recent weeks as we believe the upside opportunity set in China remains greater than many others in more developed markets. It is not without risk, of course, but worth some skin in the game,” Sullivan said.
Evy Hambro and Catherine Raw's BlackRock World Mining investment trust is another example of where the managers have been looking for value. The fund is down 32.94 per cent over five years after falling commodities prices and weak economic growth hammered cyclical mining stocks, although it has held up better than its average peer.
BlackRock has a long track record of investing in natural resources and has built a team of analysts who have a background in mining or natural resources. This means it has excellent access to company management and is seen as one of the more highly rated players in this specialist area.
When it comes to bonds, Coram Global Balanced has a position in Jim Leaviss’ M&G Global Macro Bond fund. This is a fully flexible portfolio, which is unconstrained in terms of currency or duration and can invest in any type of credit security.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Much of the fund’s past success - it is ahead of its average peer over one, three and five years - has been attributed to Leaviss’ macro calls and currency allocations. It appears on the FE Research team’s Select 100 list of preferred funds.
Sullivan said: “The bond markets are currently perplexing – with a huge number of prime sovereign bonds now in negative nominal territory, which surely must tell us something about the health of the economy.”
“The dislocation between the rating of equity markets against the negative yields (if not negative, historically low) witnessed across bond markets is remarkable, and that dislocation would concern us if loaded up with equity or equity centric investments.”
As mentioned at the start of the article, Coram Global Balanced is still a work in progress and the managers are awaiting further opportunities before full investing the portfolio.
The managers say that “in the absence of any great apparent opportunities” they have also started a position in the market neutral BlueCrest AllBlue fund, which they have been investing with for many years. This is a multi-strategy fund of BlueCrest-managed hedge funds and has a very low correlation to both equities and bonds.
They eventually see Coram Global Balanced as having a portfolio of around 25 investments spanning six or seven themes. The top 10 holdings are expected to account for about 40 per cent of assets.
Sullivan added: “There is the temptation to implement the desired portfolio asset allocation as soon as we’re given money to run, but it’s important not to lose sight of the fact we are managing these funds over five to seven-year investment cycles – so a week or two becomes rather insignificant.”
“It has also been quite an extraordinary time – with the de-pegging of the Swiss franc, Chinese GDP numbers, IMF growth revisions, European QE and Russian interest rates at 15 per cent. A lot of goal posts have been moved and we continue to expect this uncertainty to throw up some enticing opportunities to further develop our portfolio.”
“In particular, once the noise of QE passes, we expect to see markets fall back towards a more sustainable PE multiple rating as the reality of QE underwhelms. This, we hope and expect, will present much more appetising opportunities for all of us to enjoy. In this situation, the optionality of cash is priceless.”
