Funds And Trusts Four Professionals Are Buying And Selling: Q3 2023

Inflation has been stubbornly high and interest rates could remain high for some time. Markets are likely to continue being volatile, and yet, there are opportunities to look out for. Professional fund pickers are finding new ways to position themselves in a challenging economic environment. Every quarter, our multi-manager panel participants reveal their current bull and bear points. They discuss the new funds and investment trusts they have purchased, those they have increased their holdings in and the ones they have trimmed or sold.

David Hambidge, investment director of multi-asset at Premier Miton Investors

Reason to be bullish: Both bonds and listed property funds have suffered a significant derating as interest rates have continued to rise and, in many cases, now offer an attractive level of income and good medium term recovery potential.

Reason to be bearish: Although it is likely that interest rates will peak soon, any significant reduction will be dependent on much weaker economic data than we are currently witnessing. Maybe a case of being careful what you wish for.

New position: Hambidge has purchased the CRUX Asia ex-Japan fund. The manager, Ewan Markson-Brown, adopts an active “growth” approach, but he does not focus purely on large cap growth stocks, as he also looks at mid and small cap stocks which widens the opportunity set.

Therefore, as Hambidge points out, “the manager does not adopt a typical approach to pure ‘growth’ investing, retaining a healthy dose of skepticism that investing into high growth disruptors is always the right approach.”

This enables the manager to look beyond stocks that display compounding growth qualities or exhibit high growth momentum.

Increased position: He increased his position in Royal London Sterling Credit fund. “We initially purchased this corporate bond fund last autumn and while it has performed relatively well since then, further rate hikes by the Bank of England have been a headwind,” he says. He has therefore taken advantage of the recent dip in the price and higher yield on offer to add to the position.

Reduced position: He decided to trim the Pacific North of South EM All Cap Equity fund. “Good stock selection has helped this fund produce good absolute and relative (to peers) returns this year and we have recently taken profits,” he says, adding he recycled the proceeds into Asia ex Japan, which has underperformed in 2023.

Tihana Ibrahimpasic, portfolio manager, multi-asset team at Janus Henderson Investors

Reason to be bullish: The strength of developed economies so far in 2023 has been surprising, with labor market data remaining particularly robust. In particular, the hard economic data has remained more positive than survey responses would have suggested.

Reason to be bearish: However, leading indicators across different economies continue to point to a loss of momentum, with the rapid increase in borrowing costs perhaps starting to take its toll as default rates have begun increasing. A rise in unemployment generally comes once a recession has started, lagging other indicators of a slowdown.

New position: Ibrahimpasic has bought physical gold through the iShares Physical Gold ETC (SGLN). “We find gold’s role as a safe haven asset to be attractive as we have concerns about rising recession risks and risks of financial sector shocks after the rapid increase in interest rates,” she says. The dip in gold price in relation to the US debt ceiling provided a good entry point to open a position for her.

Increased position: She has added to her holding of 10-year German government bonds. While the continued increase in core CPI inflation in the Eurozone has kept the ECB more hawkish than other central banks and supported Eurozone government bond yields as a result, she argues that the rapid increase in interest rates must be causing stresses (beyond just the acquisition of Credit Suisse), and that realization of issues could quickly change the market dynamics.

“At the same time, we have plenty of indicators of an upcoming recession in the US and some signs that the same factors may be starting to build in Europe i.e., tighter lending standards,” says Ibrahimpasic.

As growth is already predicted to be weak this year, she has “been looking for opportunities to add to government bonds and we thought the level of 10-year German bund yields (the safest haven asset among euro sovereigns) represented a fair entry point.”

Trimmed position: In order to address potential style imbalances, Ibrahimpasic has reduced some exposure to value in favor of quality. As a result, the position in Dodge & Cox Worldwide US Stock fund has been trimmed.

Peter Hewitt, fund manager of CT Global Managed Portfolio Trust

Reason to be bullish: Although remaining sticky, inflation in the US looks to have peaked and is now on the downward path; maybe frustratingly slow, however, it is the direction of travel that is key. Interest rates will peak in the US in the second half of the year which is good for financial markets.

Reason to be bearish: Conversely the opposite is the case for the UK. Core inflation is still rising which means interest rates may have further to rise. The “higher for longer” scenario in the UK is not a positive environment for financial assets. Reductions in interest rates is unlikely until 2024.

New position: Hewitt has bought Literacy Capital PLC (BOOK). He says the trust “began life in 2018 raising £54 million from friends and family. The Chair is Paul Pindar who was a founder of Capita, the chief executive is his son Richard.”

It listed in June 2021, with no new money raised. The investment focus is on small companies in the UK, typically who are founder led or managed where they wish to realize part or all the value of the business.

He notes: “There is little competition from other private equity houses at the smaller end, Profitability of the underlying companies is often rapidly improved.”

Debt levels are low, and the portfolio is valued at only eight times EV/EBITDA, which Hewitt says is way below other private equity trusts. The company donates 0.9% of net assets annually to Bookmark Reading Trust, a charity to promote reading and literacy.

Increased position: The incredible upsurge in interest in Artificial Intelligence (AI) since the advent of ChatGPT has highlighted the attractions of the Polar Capital Technology Ord (PCT) in Hewitt’s eyes. The trust has large holdings in key semiconductor stocks like NVIDIA (NVDA) and Advanced Micro Devices (AMD). It also backs certain mega tech companies, who will be the initial beneficiaries of AI such as Microsoft (MSFT) and Meta (META).

“AI is not a short-term fad, rather it could experience exponential growth if it succeeds in developing new user interfaces which could unlock widespread adoption,” says Hewitt.

Sold positions: He disposed of the Assura (AGR). Against a background of rising interest rates and higher bond yields, the valuation yield on a portfolio of small medical centers has moved sharply upward from 4.4% to 4.8%. This resulted in a decline in the net asset value of Assura of 12%.

“Due to the share price discount, the company is unable to raise new equity; the organic growth characteristics are very modest,” he says. With little prospect of progress in the asset value for some time, the shares could languish, points out Hewitt.

Vincent Ropers, co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income

Reason to be bullish: Global economies are proving more resilient than was feared a few months ago, particularly in the service sector as labor markets remain tight and consumer demand high. This should allow central banks to keep tackling inflation without risking too hard a recession.

Reason to be bearish: With inflation remaining stubbornly high, however, a recession might be the only way to break the inflationary cycle, meaning that more pain could be expected. Markets could be volatile going forward, particularly given relatively high headline valuations.

New position: Ropers added a new position in the RTW Biotech Opportunities Ord (RTW) in June. “Biotechnology is a sector we have been exposed to for years and have gradually added to since the first quarter of 2022 when the sector gave back its post-Covid gains as quickly as they were made,” he says.

He likes the sector for a number of reasons: aging population increasing demand for healthcare; increasing speed of innovation leading to a multitude of new drugs being commercialized; valuations close to historical lows; and an upcoming patent cliff by the end of this decade forcing large pharmaceutical companies to acquire small innovative biotechnology companies to replenish their stable of marketable drugs.

“The sector and this particular approach can be volatile but, with the sector historically cheap and the trust itself trading at 23.8% discount to net asset value (NAV), the margin of safety is attractive,” he says.

Increased position: Ropers continues to hold a cautious stance throughout the quarter, reflected in higher-than-average levels of cash. In that same vein, he increased the allocation to defensive strategies like TM Fulcrum Diversified Absolute Return, which uses a trading and risk-focused approach to take positions across asset classes. He says: “In the current markets where macroeconomic conditions are difficult to read and where volatility is high, those strategies can prove invaluable.”

Trimmed position: Ropers trimmed his position in Fidelity Asian Values Ord (FAS) last quarter, taking some profits after a strong period of performance. It remains in his portfolio.

He says: “Its good returns were even more satisfactory that they came in the face of a disappointing economic recovery in China, hurting the broad Asian equities universe. This is a good illustration of how strong active management can add value, particularly in difficult times.”

The four multi-manager panelists

David Hambidge is head of multi-asset investment at Premier Miton Investors. He helped set up the fund-of-funds operation in 1995 and is regarded as one of the UK’s most experienced multi-managers.

Tihana Ibrahimpasic is a portfolio manager on the multi-asset team at Janus Henderson Investors. Prior to taking on this role in 2021 she was a research analyst in the team from 2018.

Peter Hewitt is fund manager of the CT Global Managed Portfolio Growth Ord (CMPG) and CT Global Managed Portfolio Income Ord (CMPI), where he specializes in investment trusts.

Vincent Ropers is a portfolio manager at Wise Funds, responsible for multi-asset strategies, using value and fundamental investment styles. He is co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income.

–These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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