Citywire for Financial Professionals
Stay connected:

View the article online at http://citywire.co.uk/money/article/a610415

Fund managers choose career safety – loading risk onto investors

Popularity of bonds that offer below-inflation returns is a symptom of career risk aversion, JOHCM UK Opportunities manager John Wood says.

 
Fund managers choose career safety – loading risk onto investors

Risk-averse fund managers who are seeking the safety of low-yielding government bonds are saving themselves ‘career risk’ – but instead loading ‘absolute valuation risk’ onto investors, says JOHCM UK Opportunities fund manager John Wood.

'The old investment trust adage "no one ever got fired for buying IBM" seems to have morphed into "no one ever got fired for buying government bonds" – US, UK and German bonds at least,' he said. 'This avoidance of career risk means end investors are being exposed to a far more important risk: absolute valuation risk.’

Rising exposure to the perceived safe havens of government bonds means investors face potentially negative returns over the longer term.

'Why anyone would want to lend money to the grossly indebted UK government for 10 years at 1.6% when annual consumer price inflation is running at 2.8% is beyond us. We think focusing on absolute value is conducive to better real returns over the long term, ' said the investor, whose fund features in Citywire Selection.

Future bright for quality blue chips

Wood is 'tremendously excited ' by the long-term prospects of quality blue chip stocks despite the poor current economic environment.

He is sitting tight on his 33-stock portfolio, believing that patience will ultimately be rewarded and his holdings will be the long-term winners.

The fund has almost reached the £1 billion mark, which Wood believes is maximum capacity for his strategy of buying and holding quality blue chips displaying high returns on capital. The group has confirmed that it will look to take steps to limit inflows into the fund once it hits this mark.

'Despite, or indeed because of, the crushing pessimism surrounding equities as an asset class, we are tremendously excited by the long-term prospects for blue chip stocks investing. Our focus continues to be on identifying companies that can generate above average returns over the long term through compounding growth,' he said.

Reducing industrials, adding to healthcare

Over the first six months of the year, Wood has reduced his industrials weighting by around 6% to 21.4%, while the more defensive and generally steadier utilities sector has been doubled to 5% of the near £1 billion portfolio.

Wood focuses on the stocks he believes are 'best of breed' in their sectors, and many have been in the portfolio for years. The low turnover has helped the fund to achieve the lowest levels of volatility of any in its sector.

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

The Citywire guide to investment trusts

In association with Aberdeen Asset Management

Fund managers from Standard Life Investments quizzed on investment trusts


What can SLI bring to the table for those who want to put their money into investment trusts?

More about this:

Look up the funds

  • JOHCM UK Opportunities Inst Acc GBP
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the shares

  • GlaxoSmithKline PLC (GSK.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Compass Group PLC (CPG.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Unilever PLC (ULVR.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Imperial Tobacco Group PLC (IMT.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • British American Tobacco PLC (BATS.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Reed Elsevier PLC (REL.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them
  • Next PLC (NXT.L)
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Look up the fund managers

  • John Wood
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

More from us

Archive

Today's articles

Tools from Citywire Money

From the Forums

+ Start a new discussion

Weekly email from The Lolly

Get simple, easy ways to make more from your money. Just enter your email address below

An error occured while subscribing your email. Please try again later.

Thank you for registering for your weekly newsletter from The Lolly.

Keep an eye out for us in your inbox, and please add noreply@emails.citywire.co.uk to your safe senders list so we don't get junked.

Sorry, this link is not
quite ready yet