Following a series of macroeconomic stories including the Greek debt crisis, the sell-off in China and plummeting global commodity markets, the outlook for the global economy remains murky, according to the Hawksmoor team. 
Co-managers of the five FE Crown-rated PFS Hawksmoor Vanbrugh and PFS Hawksmoor Distribution funds Richard Scott (pictured), Daniel Lockyer and Ben Conway therefore believe portfolio diversification is now particularly important, and investors should balance risks versus rewards as carefully as possible.
As such, the team has been very active in re-balancing its portfolios this month and has made various changes to both funds’ positioning.
“A key area of activity during the month focused on the funds’ holdings in emerging markets and commodity related investments,” the team said.
“One of the most striking features of recent months has been the steep declines in key emerging markets, commodity prices and the share prices of commodity producers. These movements are related because fears of a sharper than expected slowdown in China’s economy has probably been the key reason for falls in commodity prices and the recent weakness of emerging equity markets.”
“It is hard to discern what will happen next, and it is probable that investor sentiment will only recover gradually towards these areas.”
In light of their increased focus on risk balance and their emphasis on searching for income, FE Trustnet reveals in the below article the funds that Hawksmoor have bought, sold and trimmed this month.
Sell - Standard Life Global Emerging Markets Equity Income
Because the team believes that sentiment towards emerging markets will only recovery gradually, they have decided to focus on areas within the region that are both low-risk and have strong upside potential.
As such, they have sacrificed global emerging market exposure in favour of Asia ex Japan equities and have therefore sold Standard Life Global Emerging Markets Equity Income.
Managed by Mark Vincent since the start of 2012, the £371m fund has outperformed its peer average in the IA Global Emerging Markets sector by 9.78 percentage points to deliver a positive return of 4.92 per cent.
Performance of fund vs sector over management tenure
Source: FE Analytics
More than half of the fund is invested in the Pacific Basin, while 11.3 per cent is in the Americas, 9 per cent is in Europe ex UK and 8 per cent is in Europe and the Middle East - the fund also has weightings in South Africa and Australasia.
Sell – Blackrock Natural Resources Growth & Income
Another fund the team has sold completely is BlackRock Natural Resources Growth & Income. Despite acknowledging its high level of diversification, Hawksmoor believes that the resource companies it holds are at risk of enduring dividend cuts.
BlackRock Natural Resources Growth & Income is in the IA Specialist sector and doesn’t have an allocated benchmark.
However, FE data shows the £23m fund has lost half the amount of the average natural resources fund in the Investment Association since its launch in May 2011. It also beat its average peer in 2011, 2012, 2013 and 2014 and, despite its losses of more than 12 per cent, is outperforming again so far in 2015.
This has meant the five FE Crown-rated fund has made its way onto the FE Research Select 100 list for its “best-in-class” portfolio of between 40-80 stocks, and currently yields 4.03 per cent.
Nevertheless, while the team at Hawksmoor rate the management team highly, they say the fund’s investment remit means it could continue to underperform on an absolute basis.
Sell – RWC Enhanced Income
What may come as a surprise to many investors who are familiar with the PFS Hawksmoor Vanbrugh and PFS Hawksmoor Distribution funds is that the team has fully exited RWC Enhanced Income, which has historically been one of their largest holdings.
RWC Enhanced Income, co-managed by John Teahan, Ian Lance and Nick Purves, aims to protect and grow capital while also delivering a constant annual yield of 7 per cent through a focus on strong, low-valued UK businesses as well as the use of covered call options.
The £338m fund, which is also in the IA Specialist sector, has achieved a lower annualised volatility than its FTSE All Share benchmark since its launch in 2010, as well as a lower maximum drawdown. However, the manager’s more cautious positioning has hurt investors as it has underperformed its benchmark by more than half over the same time period, providing a total return of 18.45 per cent.
“Another lower risk fund that has failed to perform as we had expected is the RWC Enhanced Income Fund,” the team said.
Hawksmoor has also sold a small holding in Law Debenture investment trust, due to the sharp expansion of its premium to net asset value since the team bought it in April.
Buy – Guinness Asian Equity Income
Because of their conviction in Asia ex Japan, the Hawksmoor team has invested in Guinness Asian Equity Income as a replacement for Standard Life Global Emerging Markets Equity Income.
The Asian region has been the major driving force behind the recent sell-off in emerging market equities, largely due to the huge correction in China’s stock market. However, given those falls, the managers say the region now offers a decent level of safety and that the Guinness fund is the best option to gain access to the lower valuations.
Launched at the end of 2013 and managed by Edmund Harriss, the new fund has already more than doubled the performance of its MSCI AC Pacific benchmark and its average peer in the IA Pacific ex Japan sector.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
While there is not yet stock-specific information available, the fund will usually invest in at least four Asian countries and is designed for investors who wish to hold the fund for a minimum of five years.
Buy – BlackRock World Mining
While Scott, Lockyer and Conway sold their exposure to BlackRock Natural Resources Growth & Income, they used the proceeds to buy BlackRock World Mining investment trust, despite having slightly reduced their exposure to the area as a whole.
The one FE Crown-rated fund has a high-conviction portfolio of approximately 67 stocks, and holds in excess of 27 per cent in Rio Tinto, BHP Billiton and Glencore Plc combined.
However, It has underperformed its Euromoney Global Mining benchmark over one, three, five and 10 years, as well as over three and six months.
Despite that, the team at Hawksmoor think the trust is a good option on a longer term view as a result of its current portfolio – especially for income seeking investors.
“We believe that dividend cuts are a serious risk for many resource companies, but we note that the managers of BlackRock World Mining, whose share yield over 8 per cent, expressed optimism in late July that “companies have significantly cut costs, margins for many companies have been helped by currency moves, valuations are at heavily discounted levels and premium dividend yields (which should be sustainable for the quality companies we are focused on) mean that investors are being paid to wait.” (Mining Update July 2015),” the team stated in its report.
BlackRock World Mining, managed by Evy Hambro, is currently trading at an 8.4 per cent discount, is geared 16 per cent and yields 8.5 per cent.
Buy – John Laing Environmental Assets
One of the specialist closed-ended funds the team has increased its exposure to is John Laing Environmental Assets, managed by David Hardy and Chris Tanner.
Currently yielding 5.7 per cent, the trust is £226m in size, is geared 18 per cent and is currently trading on a 5.2 per cent premium.
Since its launch last year, the trust has outperformed its sector average in the IT Infrastructure Renewable Energy sector by 4.02 percentage points, delivering a return of 11.33 per cent.
Performance of fund vs sector and benchmark since launch
Source: FE Analytics
Scott, Lockyer and Conway have also bought into the new issue of UK Mortgages Limited, which is a trust managed by Twenty Four Asset Management.
The team said: “This new fund should generate a high single digit per annual return from investment in mortgages, and its share price has risen since its launch, no doubt reflecting the fact that the issue was over-subscribed.”
