Bill McQuaker, head of Henderson’s multimanager team, has been selling down his UK equity exposure but has hung on to the large cap-focused funds that he started by buying at the start of last year.
The FE Alpha Manager said: “We own large-cap and experienced managers, you’ll see that across the portfolio. We like people who are good at what they do, [managers] who if the markets are going up will do well and in some cases will do exceptionally well.”
“When the world turns against you, we usually have a lot of exposure to people who can deal with the downside.”
In this article, we take a look at the UK funds which McQuaker believes can steer investors through the toughest of times.
JOHCM UK Opportunities
McQuaker said: “We own JO Hambro UK Opportunities, run by John Wood. He’s actually a very astute, very clever manager. Have a look at his performance in the long run. He destroys most people. He’s a good fund manager.”
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Although JOHCM UK Opportunities focuses on the UK market, FE Alpha manager Wood prefers companies that gain most of their earnings from overseas. The manager identifies long-term global tailwinds or economic developments which support sustainable growth, then seeks companies positioned to benefit from them.
Almost 70 per cent of the fund is invested in large-caps and mega-caps as Wood deems smaller companies to be too risky. He manager likes companies with predictable and sustainable earnings that are reinvested into the business rather than handed out to shareholders.
The £1.6bn fund, which currently has a large allocation of 19.03 per cent cash, holds tobacco companies British American Tobacco and Imperial Tobacco in its top five holdings, as well as National Grid, Unilever and Reed Elsevier.
In his latest update, Wood told investors: “Once again, our essential message of recent months and years remains the same: absolute valuations within the UK stock market, artificially inflated by quantitative easing and extreme monetary policy, are unattractive to us as fundamental investors in the absence of an improvement in underlying corporate fundamentals. We remain faithful to our absolute valuation discipline, meaning we retain our high cash balance.”
JOHCM UK Opportunities has a clean ongoing charges figure (OCF) of 0.81 per cent and charges a performance fee of 15 per cent performance fee if the NAV outperforms the benchmark on an annual basis. It currently yields 2.80 per cent.
Majedie UK Equity and Majedie UK Income
Majedie UK Equity is run by five co-managers: Adam Parker, Chris Field, James de Uphaugh, Matthew Smith and Richard Staveley. Founded in 2003, the £3.1bn fund has more than 70 per cent of assets in larger companies and 2.5 per cent cash.
McQuaker said: “[Majedie UK Equity] is a good fund. It’s run on a sleeve basis, so it’s not just one person. They carve the capital out and give it to different managers with different styles, and it’s very well blended.”
“One of the challenges for equity managers is that most have got a certain style, and their style is either their friend or their enemy. Sometimes it’s very accentuated and the numbers can be wonderful while their style’s in favour, but when their style goes out of favour, they can pick stocks until the cows come home and still seem to underperform, somehow.”
He added: “If the world moves to favour growthier companies or smaller companies, they can accommodate that within limits by changing the shape of their portfolio. And they have good fund managers as well.”
Performance of funds vs sector and benchmark since December 2011
Source: FE Analytics
McQuaker is also a fan of Majedie UK Income, which is managed by Reid and Yuri Khodjamirian.
The five FE crown-rated UK Income fund has 41.9 per cent of assets in the FTSE 100, with 37.8 per cent in the FTSE 250. Some 13.6 per cent is in international stocks from European, Canadian and Japanese equities.
The fund has a very strong performance profile, currently being the top returning fund in the IA UK Equity Income sector over one and three years. Its top five holdings are Direct Line Insurance, Pearson, Friends Life, EasyJet and Rio Tinto
Majedie UK Equity has a 0.78 per cent clean OCF. Majedie UK Income’s OCF is 0.78 per cent and is yielding 3.19 per cent.
CF Lindsell Train UK Equity
McQuaker said: “We’ve still got some Nick Train, which just continues to outperform. He’s got a very astute approach to portfolio construction.”
“There are just four or five shares that are very robust, medium-term growers that if the world turns difficult, they are the ballast of the portfolio and they will outperform markets that are going sideways, or particularly bonds that are going down.”
“So, you’ve got half the portfolio that takes care of you if things are difficult, and then the other half of the portfolio is invested in companies that are very sensitive to the stock market, and also in companies that have got a bit of beta to them.
FE Alpha Manager Train is known for his highly concentrated approach, running a portfolio of around 25 stocks. He is very long-term in approach, with new holdings rarely added or positions sold out of.
McQuaker added: “What he never ever has is resources. Not a single share, no oil companies, no miners, and that has been the thick layer of cherry jam over this delightful cake he’s baked over the last five or six years.”
The multimanager acknowledges that, when resources are doing well, Train finds it almost impossible to outperform. He added: “However, not having those areas has been wonderful for him because they’ve been a big headwind for stock markets.”
“Fund managers say ‘I’m underweight this’ or ‘I’m underweight that’, but having nothing means you’ve exed out 20 per cent of dead weight, which is great.”
Performance of funds vs sector and benchmark over 8yrs
Source: FE Analytics
Boasting an FE Crown Fund rating of five, Train’s £1.39bn fund consists of 54 per cent large-caps. Only 9 per cent is invested in mega-caps and 11 per cent is invested in small-caps.
Almost a third of his fund is invested in the telecom, media and technology sector and its top five holdings are Unilever, Diageo, Reed Elsevier and Pearson.
CF Lindsell Train UK Equity has a 0.77 per cent clean OCF.