Just one out of 10 FE Trustnet readers are feeling bearish enough on global equity markets to de-risk their portfolios and sell down exposure following the January sell-off, according to a survey by FE Trustnet.
Pushing investors to the edge of their seats, markets have spent the first five weeks of the year performing in a highly volatile and downward fashion to the ire of many market participants.
Performance of indices in 2016
Source: FE Analytics
No major equity market is currently in positive territory for the year so far with only bond funds – in particular the more defensive portfolios stuffed with gilts and treasury bills – making money.
Just 11 per cent of the more than 2,500 readers we polled said they were reducing equity exposure following January’s falls.
Another 38 per cent said they were increasing exposure and 51 per cent said they are planning to keep their asset allocation the same as it was before the start of 2016, when markets began their most recent period of heavy selling.
Paul Craig, who heads up Old Mutual Global Investors’ Cirilium range of funds of funds, which includes Old Mutual Cirilium Balanced, Old Mutual Cirilium Dynamic, Old Mutual Cirilium Moderate, Old Mutual Cirilium Strategic Income and Old Mutual Cirilium Conservative, has not added any equity exposure to his portfolios and is waiting to see what happens in the near term.
“I have not become more negative on the fundamentals, rather waiting for a little more clarity and a little less hysteria,” he said.
Ben Willis, head of research at Whitechurch Securities, is also reticent to add to equity exposure.
“We made no change to our strategy over January. In terms of asset allocation and taking into account risk profile, we were already positioned accordingly. We did not pre-empt the start to the year and so we did not have cash sitting on the side lines to put back in,” he said.
Nor has co-head of F&C’s MM Navigator range of multi-manager portfolios Gary Potter thought it a bargain hunting opportunity.
“We have generally not bought into the fall for the time being from an equity exposure perspective,” Potter said.
Potter has by no means been avoiding UK equities though and continues to hold the likes PFS Chelverton UK Equity Income, Majedie UK Income, Ardevora UK Income, Standard Life Investments UK Equity Income Unconstrained and JOHCM UK Equity Income funds as he particularly favours the mid-cap space.
Mike Deverell, investment manager at Equilibrium, has – in contrast – been ‘trading volatility’ using passive funds tracking the FTSE 100.
“Twice late last year we bought a FTSE tracker at around 6,000 and then sold when the markets gains 5 per cent to 6 per cent, banking a gain for a small part of client portfolios,” he explained.
“We have done this consistently over time, making lots of small differences which can add up to quite a big number over time. We had been underweight equities before the volatility hit half way through last year so our positioning has added quite a bit of value.”
In 2016 he again bought a tracker – when the FTSE 100 was around the 5,960 mark – in early January.
“However, our views have changed slightly over the month from cautiously positive on equities to neutral. As a result, when the market rose back again we sold this at only a 1 per cent gain. The main reason was to reduce risk and create more cash,” he said.
Ben Conway, fund manager at Hawksmoor, has mainly been attracted to private equity investment trust HG Capital over exposure to core listed equity markets thanks to the IT’s move to a hefty discount and a lack of attractive opportunities in large-cap stocks.
HG Capital, which invests in private small companies across services, industrials and renewable energy, is on its widest discount for at least 10 years at 23 per cent.
The fund has more than doubled the FTSE All Share as well as its sector average over this period, despite the widened discount.
Performance of trust, sector and index over 10yrs
Source: FE Analytics
“The areas we still want to be exposed to are generally at the smaller part of the market and private equity is an extension of that,” he said.
“In [listed] equity markets I don’t think value is that easy to find. Yes markets have fallen, but they have fallen from a very, very high level.”
“Just because indices have fallen by 15 per cent from when we first started becoming wary of valuations in 2014 does not make them automatically good value.”
However, Conway and colleague Daniel Lockyer have been buying some new listed- equity exposure recently adding FE Alpha Manager Henry Dixon’s £424m Man GLG Undervalued Assets fund.
Conway says the fund, which has strong deep value tilt, is well positioned to dig up the little value around in the UK market.
“Dixon has a particular style – he is very value orientated – and his portfolio is the cheapest it has ever been relative to the index and when you have an investor of his experience telling you something then that is the type of fund we would like to back,” he said.
Dixon has managed the fund since launch in November 2013, over which time he has strongly outperformed the FTSE All Share as well as the IA UK All Companies sector average.
Performance of fund, sector and index since launch
Source: FE Analytics
Rathbone head of multi-manager David Coombs has added just one fund in January to his portfolios, a structured product targeting the FTSE 100 as part of a rebalancing, as well some investments in direct equities.
“Volatile months are a good time to rebalance portfolios, which means trimming outperformers and buying into dips to bring us back into line with how we want to spread risk,” he said.
“We’ve been adding to some of our favourite names in the US, UK and Europe. In our Strategic Growth Portfolio, we purchased the HSBC Bank 862 FTSE Defensive Autocall structured product.”
“This is a contract that pays out 8.5 per cent if the FTSE 100 is above 5,871 in a year’s time (the FTSE 100 ended January at 6,083). If not, the contract rolls over to the next year for a maximum of six years. This is an insurance policy that gives us a reasonable return if the FTSE falls or remains flat.”
