When a fund manager takes over a portfolio, they’re often keen to explain how they have ‘overhauled’ the fund to their investors, detailing the sometimes long lists of stocks that have been bought and sold.
Not so with Columbia Threadneedle Investments’ Chris Kinder, who took over the Threadneedle UK fund in September of last year. While the manager has put his own stamp on the portfolio, he has not needed to make numerous radical changes.
Performance of fund vs sector and index over 5rs
| Over manager tenure |
Over 1yr | Over 3yr | Over 5yr | |
| Threadneedle UK Ret Inc GBP TR | 7.98% | 8.04% | 46.60% | 73.38% |
| IA UK All Companies | 7.18% | 7.93% | 44.88% | 61.79% |
| FTSE All Share | 5.89% | 7.48% | 39.98% | 55.95% |
Source: FE Analytics, all data to 30 Apr 2105
“The first point to make is that the portfolio certainly hasn’t been overhauled,” Kinder explained.
“I was comfortable with the mandate when taking on the fund, but clearly I have my own views on how to construct a portfolio to meet the risk appetite of the investors.”
For example, the manager, who joined Columbia Threadneedle Investments’ UK equities team as a portfolio manager in 2010, has made no changes to the risk budget of the fund. Risk metrics, such as the beta and tracking error ratios, remain similar to those that existing investors saw before he took over.
However, Kinder’s bottom-up approach – which focuses on individual companies rather than macroeconomics – has resulted in some changes at a sector level. Meanwhile, the number of holdings has been trimmed from 74 to 66 after some lower conviction positions were removed and cash recycled into core stocks.
The most significant change he has made to the shape of the fund is reducing mining stocks within the basic materials sector. Threadneedle UK fund has 4.9 per cent of its portfolio in the basic materials sector, an underweight position vs. its FTSE All Share benchmark.
“Within this, higher-risk off-index positions that were very large contributors to the overall risk of the portfolio were exited,” Kinder said. “I do not feel the need to hold off-index positions as there is sufficient richness and diversity within the universe to deliver the return targets.”
Mining stocks have proven unpopular among investors over recent years due to the falling price of commodities and metals. The manager has been able to find opportunities elsewhere, although he does have Rio Tinto in his top 10 holdings sighting the company’s strong balance sheet and overall asset quality as reasons for preferring the position within the sector.
In reducing exposure to the mining sector, Kinder (pictured) and his team were able to build positions in quality cyclical names and add to more resilient companies in the tobacco and consumer sectors. The fund’s largest holdings in these sectors include Imperial Tobacco, Unilever and Diageo.
“We have long had a preference for consumer stocks, but this is based on stock specific fundamentals through our bottom-up stock picking approach, rather than a sector-wide call based on macroeconomic factors,” he said.
However, these moves have not meant much change to the market-cap composition of the fund. The portfolio has around one-quarter of assets in the mega-cap space, one-third in large-caps and one-third in mid-caps, with just 7 per cent in small-cap names, according to portfolio analysis firm Style Research.
Kinder has bought two mid-cap stocks since taking over: Hunting, a supplier to the oil & gas industry, and Intermediate Capital Group, a specialist asset manager focusing on areas such as alternative credit, direct lending and senior secured loans.
But this has come alongside the purchase and adding to of large-cap stocks such as BAE Systems, InterContinental Hotels and Rio Tinto, keeping the split between the FTSE 100 and FTSE 250 indices broadly the same.
When asked where he is seeing value opportunities at the moment, the manager points to the oil services sector, which has suffered over the past year as the oil price slid.
“Many oil services stocks also look interesting with valuations having become depressed with the collapse in commodity prices,” Kinder said. “In our view, these companies are fundamentally better investments than the mega-cap capital intensive oil stocks.”
In contrast, Kinder isn’t seeing much value in utility stocks, which have been some of the main beneficiaries of investors’ search for income and the subsequent move into so-called ‘bond proxies’ over recent years.
“Valuations have become elevated and the bond proxies might be impacted heavily when rates normalisation comes through,” he explained.
So while there have been a few shifts and swaps since Kinder took over the reins, is the fund still in the process of transition eight months on?
“I would say that the initial move to reduce the number of holdings and modify the shape of the portfolio has been done, but we continue to be on the lookout for further opportunities,” he explained.
Kinder notes that, in a constantly-changing investment environment, it is important to keep on top of any developments.
“The process of portfolio evaluation never stops,” he said. “When a stock reaches our target price we use it as a trigger to review and rigorously debate whether the story has changed and whether we should still hold the position. This is a continuous and fluid process.”
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