Further poor news from Woodford Patient Capital trust portfolio holding Prothena led the Hawksmoor’s multi-manager team to exit the position in its five FE Crown-rated MI Hawksmoor Vanbrugh fund.
Commenting on 2018 Q2 activity, the team – formed of FE Alpha Manager Richard Scott, Daniel Lockyer and Ben Conway – said they had decided to exit Woodford’s investment trust due to a loss of conviction.
They also said the current “murky” outlook for markets and generally high asset valuations has led them to redouble efforts to find areas away from mainstream bonds and equities that can deliver decent returns.
That view was reflected by additions to holdings in specialist property funds or the introduction of exposure to mortgage-backed securities across the Vanbrugh and five FE Crown-rated MI Hawksmoor Distribution fund.
“It is clearly difficult to predict how things will unfold, which means that we continue to seek to ensure Vanbrugh and Distribution are broadly diversified in funds managed by trusted professional investors cognisant of the challenges faced in the current environment,” they noted.
Performance of fund vs sector since launch
Source: FE Analytics
Despite being one of the most high-profile fund launches in recent years, attracting £800m to its initial public offer (IPO), FE Alpha Manager Neil Woodford’s closed-ended strategy has seen an underwhelming performance since its inception.
Since launch in 2015, the now £677.3m fund has lost 17.96 per cent compared with a gain of 36.56 per cent for the average fund in the IT UK All Companies sector, as the above chart shows.
The fund, that looks to invest in privately-owned companies predominantly in the biotechnology and technology sector, has Nasdaq-listed Prothena as one of its main holdings.
Although Woodford has reduced exposure to Prothena since the beginning of the year, the biotech company is still one of the fund’s top-10 stocks with a 3.22 per cent weighting in the portfolio.
When it comes to the £137.4m Vanbrugh fund – whose investment objective is to provide capital growth and income – the Hawksmoor fund management team said Odyssean Investment Trust was introduced at the expense of Amati UK Smaller Companies.
The team also adjusted their fixed income exposure in the fund, trimming Royal London Short Duration Global High Yield and M&G UK Inflation Linked Corporate Bond, and increasing their holding in Muzinich Asia Credit Opps, which they said has more favourable risk-return prospects.
Following a weakening in the US dollar, they also decided to add to their position in M&G Global Macro Bond.
Semper Total Return, which offers exposure to US mortgage-backed securities was also introduced in both the Vanbrugh and the Distribution funds.
“We introduced holdings in Semper Total Return, broadening Vanbrugh and Distributions’ exposure to attractively-valued opportunities in mortgage-backed securities, accessed via a recognised leading specialist in the asset class,” the team noted.
Other disposals in the Distribution fund – which aims to provide income with the prospect of capital growth – included Schroder Strategic Credit and in BlackRock Frontiers Investment Trust, the latter due to negative data from Argentina.
“Most of the activity in the Distribution fund during the quarter focused on our fixed income exposure,” the team said.
“Early in the quarter we sold out of our position in Barings European High Yield Bond fund following a strong run that had seen the spread offered over investment grade bonds narrow significantly, diminishing the margin of safety on offer. We introduced a position in Close Select Fixed Income fund, a nimble credit fund, in its place.”
The five FE Crown-rated Close Select Fixed Income is overseen by FE Alpha Manager, Stephen Hayde alongside Ian Goodhand and Andrew Metcalf. The £146m fund aims to provide income while maintaining its capital value over the medium term by investing mainly in sterling-denominated bonds, although it may also hold international fixed income securities.
Performance of fund vs sector over 1yr
Source: FE Analytics
Elsewhere, a holding in Schroder Income Maximiser was introduced for the Distribution fund, complementing existing exposure to the Schroder Global Equity Income Fund.
“The Income Maximiser Fund has a very attractive yield, and will benefit from improving terms for its call-writing strategy if the heightened level of volatility in equity markets persists,” the Hawksmoor team said.
On performance of the funds – although they warned it would be dangerous to read into price movements in the volatile month of June – they noted the better performers were mainly holdings in specialist sectors, including property, healthcare equities and private equity.
Detractors to performance during the month included exposure to gold mining equities, emerging market bonds and Asian equities.
They said: “Probably the main reason why many asset prices have started moving sharply without holding to a persistent trend is the growing confluence of conflicting forces which are pushing and pulling asset prices in opposing directions.
“On the positive side, generally robust corporate earnings and reassuring inflation data cheered investors.”
They added: “Opposing this, however, were some powerful negative issues, not least of which was a further deterioration in international trade relations, and a rise in the value of the US dollar which drained liquidity from some areas of markets.
“The short-term relative performance of different markets can be explained mainly by how these factors affected some areas more than others.”
Over three years, MI Hawksmoor Distribution has delivered a 29.74 per cent total return compared with a 24.43 per cent gain for the IA Investment 40-85 % Shares sector. It has an ongoing charges figure (OCF) of 1.86 per cent and yields 3.26 per cent.
Performance of funds over 3yrs
Source: FE Analytics
MI Hawksmoor Vanbrugh is up 25.41 per cent compared with a gain of 17.13 per cent for the IA Mixed Investment 20-60% Shares sector. The fund has an OCF of 1.92 per cent and yields 1.33 per cent.