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Hawksmoor: We have sold the top-performing Artemis Global Income fund

03 March 2015

Hawksmoor’s Daniel Lockyer and Ben Conway tell FE Trustnet why they have sold Artemis Global Income, despite its stellar returns over recent years.

By Alex Paget,

Senior Reporter, FE Trustnet

The team at Hawskmoor Investment Mangament have sold their stake in Jacob de Tusch-Lec’s top-performing Artemis Global Income fund due to its high beta characteristics.

Daniel Lockyer, Richard Scott and Ben Conway – who head up the PFS Hawksmoor Distribution and Vanbrugh funds – had originally bought the four crown-rated fund when it launched in July 2010 due to de Tusch-Lec’s value style and as the portfolio is designed to sit alongside UK equity income funds.

The now £1.8bn fund has become a darling of the IA Global Equity Income sector since then as while a large proportion of its peers have failed to beat the various world indices, de Tusch-Lec’s fund has significantly outperformed.

However, Lockyer and Conway say that as risks are increasing in equity markets, the fund’s higher beta characteristics means they have been forced to sell.

“We have sold out of Artemis Global Income. It has been an absolutely phenomenal performer for us, but we sold out at the beginning of October which, on the face of it, you could argue was a little bit too early as the fund has gone on to perform fantastically well,” Conway said.

“It’s done really well for us, but we were aware that out of the global equity income funds, it did tend to take more risk. When you looked at the breakdown of our global equity income funds, it was one of the higher beta holdings.”

“Given how we wanted to evolve the portfolio, it was the one fund, I’m afraid, that came under the most scrutiny.”

According to FE Analytics, Artemis Global Income has topped the IA Global Equity Income sector since its launch with returns of 105.81 per cent, beating its benchmark – the MSCI AC World index – which is up 68.84 per cent.

Performance of fund versus sector and index since July 2010

 

Source: FE Analytics 

As a point of comparison, the second best performing fund – Invesco Perpetual Global Equity Income – has returned 88.43 per cent. On top of that, Artemis fund is just one of four funds in the 18 strong-sector to have beaten the index over the period in question.

Apart from 2011’s falling market when fears over a eurozone collapse intensified, de Tusch-Lec has turned in top decile returns in each of the last four calendar years.

Performance of fund versus sector and index

 

Source: FE Analytics 


Hawksmoor’s comments about the fund, ironically, come on the same day that City Financial’s Adviser Centre added the fund to their “Recommended list”.

“Having managed the fund since its launch in July 2010, the approach is now well-established, with the manager seeking to deliver a rising income with the potential for capital growth from global equities,” Gill Hutchison, head of investment research at City Financial, said.

“In consideration of the manager’s thoughtful approach to the design and on-going management of the fund and, by dint of experience, his deep understanding of quantitative analysis, we are pleased to add this differentiated, global equity income offering to our Recommended list.

However, the team at Hawksmoor have decided to sell the fund, not because of worries about the manager, but because of their concerns about the wider equity market as they believe now is a good time to be de-risking their portfolios.

“[Our decision] is not borne from us having a view of the world that everything is going to go wrong, it’s more that the opportunities to find attractive investments are diminishing and have done over the last few months,” Lockyer said.

“The driver of equity returns is dividends, multi-expansion and earnings. It is the earnings that worry us at the moment as, generally, they are not coming through. Equities are being driven by multiple expansion which are being driven by flows coming out of bonds.”

As the graph below shows, P/E multiples on the MSCI AC World have been steadily widening over the last three years as money has flown into equities as a result of accommodative monetary policy from the world’s central banks, while at the same time, corporate earnings have been relatively flat and have even fallen over recent months.

MSCI AC World index’s price, total return and EPS since Jan 2012

 

Source: Fidelity/Hawksmoor

As a result, the managers have been looking for “alpha generating” funds which have a certain degree of control over their own destiny and have been selling funds which are high beta – which measures the returns which reflect a wider market movement.

Artemis Global Income’s beta relative to the index is 0.89 since its launch, meaning it has the third highest sector.

Therefore Lockyer says he has no qualms about selling the fund, even though it has performed so strongly for his investors.

“It is part and parcel of what we do. We are always looking towards the future and what the future returns are going to be, rather than what is behind us. It has been a phenomenal holding for us and we backed it since launch, so it is a shame to see it ago,” he said.  

“When we were looking through the portfolio and looking to de-risk, it was the highest beta fund we had.”

One of the funds Hawksmoor have been buying instead of Artemis Global Income is the £1.1bn RWC Global Convertibles fund, which as its name suggests, invests in fixed income assets that can be converted into a predetermined amount of the company's equity at certain times during its life.

“Convertibles are a great asset class, but one of the reasons we were attracted to them at this point in time is when you look at the valuation on convertible bonds as an asset class, relative to their history, they are actually very, very cheap which is quite rare for the current environment,” Conway said.  

“It’s not an asset class a lot of investors look at, which is perhaps why you’ve got this slight inefficiency. However, apart from the fact that it is cheap, the [RWC] fund still allows you to participate in equity market upside and roughly speaking, the beta on it is about 0.5.”

He added: “However, the nature of the asset class means they act like a bond if equity markets were to fall. It’s a perfect instrument for how we are currently thinking.” 


RWC Global Convertibles fund, which sits in the IA Specialist sector and is managed by Davide Basile, was launched in January 2007. According to FE Analytics, it has returned 46.01 per cent over that time.

Performance of fund versus sector and index since January 2007

 

Source: FE Analytics 

While, as a point of comparison, the FTSE All Share has returned around 10 percentage points more of than the fund, the fund has been three times less volatile than the index over that time.

RWC Global Convertibles has also had a maximum drawdown, which measures the most an investor would have lost if they had bought and sold at the worst possible times, which is more than half the amount of the FTSE All Share since its launch.

The fund has an ongoing charges figure of 1.05 per cent.

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