James Thomson has taken the defensive stocks in his £1.5bn Rathbone Global Opportunities fund to their maximum limit as growing political risks and slowing economic growth cloud the investment outlook. 
FE Alpha Manager Thomson has been lifting the portfolio’s allocation to “weather proof investments” – or stocks that he believes can withstand a growth downturn – in light of the UK’s decision to leave the European Union and the increasingly fractured political scene in the US.
“Over the last 18 months I have increased the weather proof portion of the fund and that’s in keeping with what I’m allowed to do,” he explained.
“I want to have between 15-25 per cent of the fund in these weather proof investments. At 25 per cent, I push these boundaries but I don’t see any need to increase it any further.”
Performance of fund vs sector and index under Thomson
Source: FE Analytics
Examples of stocks that can be found in the portfolio’s 25 per cent allocation to weather proof investments include those that supply food seasonings, care homes, pest control and rubbish collection – goods and services where demand tends to hold up even in weaker economic climate.
Thomson, who has generated a top-decile 594.84 per cent return since taking over Rathbone Global Opportunities in November 2003, has a bottom-up approach that searches for under-the-radar holdings. This differentiates it from many of its peers, which cluster into the same stocks.
“I found it bizarre that so many funds have all the same holdings. Everyone seems to have the same stuff: things like Unilever and Nestle,” he said. “I just thought that sounds a bit mad to me. I want to create a fund that’s as flexible as possible because that will future proof it.”
A key element of the manager’s approach is maintaining a defensive bucket of holdings that are less economically sensitive, with slower and steadier growth prospects. He introduced this to his process after Rathbone Global Opportunities was hit hard during the financial crisis of 2008.
Today, the portfolio is maxed out at 60 holdings (it aims to run a concentrated portfolio of between 40 and 60 holdings). Technology is the largest sector allocation at 21.39 per cent (reflected in its top three holdings of Amazon, Align Technology and Adobe System), followed by financials at 20.36 per cent.
However, the fund’s current defensive bias can be seen in weightings towards healthcare, consumer goods and consumer services.
Sector breakdown of fund
Source: Rathbone Unit Trust Management
According to Thomson the number of stocks with top line growth greater than 15 per cent has been down trending for the past 20 years, resulting in “a pretty bad cocktail of less growth and more unreliable growth”.
“I think basically that we’re in a world starved of reliable growth,” the manager said. “Trump got elected because people were screaming for stronger growth, Brexit was a scream for stronger growth.”
The Brexit result led Thomson to “definitely avoid” the UK. Around the time of the referendum in 2016, about 23 per cent of his portfolio was in UK equities; today it’s 6 per cent.
“I just said ‘Look why not avoid the cause of that controversy by investing overseas?’ I don’t have to deal with that impossible decision investing in the UK and to a lesser extent in Europe,” he explained.
“Surprise, surprise here we are today with a fund at the highest levels of US exposure I have ever had. The fund is two-thirds invested in the US, which is the highest it has ever been. One month ago, the fund was 61 per cent US, now we’re at 66 per cent plus.”
But while Rathbone Global Opportunities’ defensive bucket is at its peak, the nature of Thomson’s approach means that risk can still be taken within the portfolio. “Even though the economic backdrop of unreliable growth is there I don’t think that we should avoid taking risk,” he explained.
The manager highlighted ‘digital transformation’ as an area where he is seeing growth opportunities, saying it is an excitingly unrecognised area of investment within the technology sector.
“Investors tend to fall back on rule of thumbs when they get nervous. And one is that technology is extremely economically sensitive because that’s the way it used to be,” he said.
“Technology spending used to be turned off when we were going into a recession. I think that it doesn’t get turned off [now] the world has moved on. It’s too vital, it’s too critical to our businesses.”
Citing companies such as property portal Rightmove and Match, the creators of the dating app Tinder, the manager argued that digital transformation is “a tidal wave that’s pretty hard to stop”.
Performance of fund vs sector and index over 5yrs
Source: FE Analytics
FE Analytics shows that Rathbone Global Opportunities is currently in the IA Global sector’s top quartile over the past one, three, five and 10 years. It has also beaten its FTSE World benchmark over all these time frames.
The fund has an ongoing charges figure (OCF) of 0.79 per cent.