Taking a punchy bet is frowned upon by many investors due to the reams of academic studies that have proven that ‘diversified’ portfolios are preferable over the long term.
Some managers and even fund groups take a view that prioritising one security over another in a portfolio adds an extra level of risk without the equivalent reward and so equally weighting exposure is the more choice strategy.
However, most investors do tend to believe one area represents the best value at any given time and in this article we highlight these ‘uber-bullish’ positions of a panel of discretionary fund managers who have, as a result, incorporated them into a balanced portfolio.
First up Charles Stanley Direct’s Rob Morgan highlights this £2.5bn fund which he holds in his own portfolio.
“I have built a fair-sized position now in JOHCM UK Equity Income Fund by periodically adding to the holding in modest amounts, generally after the market has been through a weak spell,” he said.
“I really like equity income for a core to a portfolio and this fund generally displays more economic sensitivity than many of its peers and includes a decent amount outside the usual FTSE 100 heavyweights, which I think will help grow the income stream over the longer term.”
Managed by James Lowen and Clive Beagles, over three and five years the fund has outperformed the FTSE All Share and is ahead of the sector over five years but its more recent performance has been in the bottom quartile over the past 12 months.
This is largely due to the underperformance of its core holdings such as the banks, oil majors and miners. However, it also has a significant amount of its exposure to mid and small caps which have done much better.
Since Beagles took over the fund in 2007 (Lowen joined in 2008), the fund is up 82.72 per cent against a sector average of 48.86 per cent and a gain in the FTSE All Share of 41.52 per cent. This gives it the fifth best total return in the sector out of 56 funds. Putting it in the top decile for total return.
Performance of fund, sector and over manager tenure
Source: FE Analytics
Morgan added: “In my view the management team is of a very high quality and presently they are avoiding “bond lookalikes” – expensive defensive names in consumer staples and utilities which I agree could be vulnerable as and when interest rates rise.”
The fund has a clean ongoing charges figure (OCF) of 0.67 per cent and current yield of 4.36 per cent.
Fidelity FAST Global Emerging Markets
Premier’s Simon Evan-Cook (pictured) has this emerging markets fund (which is headed-up by FE Alpha Manager Nick Price) as the largest position in his Multi-Asset Global Growth fund, partly as he currently favours emerging markets following their recently torrid ride but also for the fund’s ability to bet against the market.
“We chose the FAST fund – as opposed to the long-only mandate – because this gives him the extra ability to short stocks that are poorly run and expensive, which again he has demonstrated adds value, even after the higher charges we pay for this fund,” he said.
“Conversely, we are also confident that, through their valuations discipline, they are positioning us into stocks that will work in future markets, not just those that have passed.”
Launching in 2011, the fund has seen two large sell offs in its area of focus with Price not escaping this past year’s crash in the asset class.
However, the fund has done very well against the index since its launch, with a return of 34.54 per cent against a 1.14 per cent rise in the index.
Performance of fund and index over manager tenure
Source: FE Analytics
Evan-Cook said: “We trust Price to pick out well-run, good-quality companies in emerging markets, and not overpay for them too. He has shown over time that he adds value from this approach.
“Valuations are more appealing [in emerging markets] here than in other parts of the world, most notably the US. That doesn’t mean their recent underperformance won’t persist though.”
“But we have avoided the worst of this by holding excellent active managers such as Price, and see no reason why this should change if that sell-off continues.”
The fund has a clean ongoing charges figure (OCF) of 0.67 per cent and current yield of 4.36 per cent.
Peter Lowman, chief investment officer at Investment Quorum says this relatively young fund, which is one of the best performers in the IA UK All Companies sector this year, is his most bullish position in his more growth-orientated portfolio.
“It is a thinking outside of the box fund. The manager, George Godber’s strategy is very simple. He likes to buy things that are worth one pound for fifty pence,” Lowman said.
Godber alongside co-manager Georgina Hamilton have managed CF Miton UK Value Opportunities since its launch in March 2013, over which time it has made a total return of 53.99 per cent, the third best performance out of the 264 funds in its sector.
The average return in its sector over this period is 17.61 per cent while the FTSE All Share gained 12.13 per cent.
Performance of fund, sector and index since launch
Source: FE Analytics
It has also had the best risk-adjusted returns and lowest maximum drawdown in the sector since inception – despite the fact it has primarily been overweight mid and small-caps.
The managers take a value approach to the market and split their portfolios into two tranches (‘cheap value creators’ and ‘bargain assets’) but they also have a strict ‘safety check’ for all of their stocks to make sure they try and avoid potential value traps.
CF Miton UK Value Opportunities has a clean OCF of 0.89 per cent.
Next Sarasin’s Lucy Walker tips another value fund, but this time one with a US mandate in the less well-known off shore space and one that has underperformed.
The $1.2bn portfolio is also relatively new having only been launched in May 2013. It has returned 32.53 per cent since launch, nearly 10 percentage points less than the index.
Performance of fund and index since launch
Source: FE Analytics
“The largest equity position across the Sarasin Global Fund of Funds is Vulcan Value Equity. The fund has underperformed the S&P 500 by almost 10 per cent YTD, which has given us the opportunity to add to our positions.”
“Vulcan are very long-term in nature, focusing on buying quality businesses at deep discounts. Recent volatility allowed them to buy larger stakes in more discounted businesses, and their recent quarterly letter stated ‘our performance in the quarter would have been better if we had not done so. Our prospects over the next five years would be worse if we had not done so’.”
“This is exactly the sort of rhetoric we want to hear from our managers – a focus on the long-term, taking advantage of volatility to increase the quality of the portfolio.”
Vulcan Value Equity has an annual management charge of 1.50 per cent.
