UK All Companies: The cautious choice
The managers of JOHCM UK Opportunities have a bearish outlook on the UK economy and this has stood them in good stead during previous market crashes.
FE Alpha Manager John Wood
has beaten his peer group average in four out of four falling markets, with his JOHCM UK Opportunities
fund outperforming its sector in 2008 and making money in 2011 while IMA UK All Companies lost 7.04 per cent.
JOHCM UK Opportunities is a five-crown rated fund, having provided top-quartile returns in its sector over one-, three- and five-year periods. According to FE Analytics
, it also has the lowest annualised volatility, with a score of 14.15 per cent over five years, compared with 18.32 per cent from its sector average.
It tends to lag its sector during rising markets and underperformed by the largest amount in 2009 and 2010. Over these two calendar years, it produced bottom-quartile returns of 13.24 per cent and 17.87 per cent respectively.
Performance of fund vs sector and index over 5-yrs
Source: FE Analytics
Wood and co-manager Ben Leyland
are maintaining their negative view on the UK economy and are reluctant to buy at this time.
"One of the most important skills in fund management is the ability to do nothing, to resist the temptation to do something purely for the sake of being seen to act," they said in a statement this week.
"With aggregate absolute valuations across the market currently looking full in our opinion, we are faced with three choices: buy quality stocks at full-to-elevated prices; buy low-quality stocks that are cheaply priced (for a reason); or stick to our absolute valuation principles and wait until such time as more attractive risk/reward investment opportunities emerge."
"We favour the latter, which is reflected in the fund’s current high cash position, which may yet edge higher," they added.
Data from FE Analytics
shows the fund currently holds 15 per cent in cash, making it the fourth highest position in terms of the portfolio’s holdings.
Wood and Leyland’s view contrasts with that of Karen Robertson, who in an interview with FE Trustnet
this week said she believed there was still plenty of value in UK stocks.
The managers say that the performance of the economy in the past month has confirmed their view that it, and the broader western economy, is due for a period of low growth.
They say they want to hold companies with strong balance sheets and cash flows and that are capable of producing growth in a poorly performing economy.
Data from FE Analytics
shows that JOHCM UK Opportunities has just 5.1 per cent in financials compared with 28.5 per cent from the IMA UK All Companies sector.
The portfolio is also hugely underweight oil and gas, holding just 3.4 per cent compared with 12.9 per cent from the sector.
The managers are overweight consumer products, services and healthcare.
The fund is available with a £1,000 minimum initial investment and has a total expense ratio (TER) of 1.31 per cent.