Despite being ‘cautious’ on the UK, Close Brothers is still sticking with it. Sam Grant-Dalton, co-manager of the Close managed funds, said lingering Brexit uncertainty and decent corporate profit growth elsewhere meant he reduced his exposure to UK stocks recently. But he added: ‘It’s still our biggest allocation: we have UK clients with sterling liabilities.’
Grant-Dalton has held the Liontrust fund, run by Citywire AAA-rated managers Anthony Cross and Julian Fosh, since its November 2005 launch, due to its ability to ‘consistently deliver’. It returned 35.1% in the three years to February 2018, compared with the 18.7% sector average.
‘We like the multi-cap approach and Liontrust managers have skin in the game, both in terms of their business and their funds,’ Grant-Dalton said. ‘It’s about alignment of interest.’
He also praised the Investec UK Alpha fund’s ‘strong’ risk-adjusted returns. He said: ‘We know manager Simon Brazier from way back in his Threadneedle days. The focus on free cashflow yields makes it a core UK holding for us.’
Close continues to favour Europe over the UK, due to solid economic and corporate profit growth on the continent. It has 11.1% allocated to Europe ex-UK equity funds.
Grant-Dalton said Pease’s fund ‘is high-conviction stock selection: he’s very close to the businesses he invests in and their management. We’ve known him since his time at Henderson, he has a long track record and is well known. He delivers consistently without swinging the bat.’
Emerging markets is another area favoured by Close, as fundamentals start to improve. Grant-Dalton said: ‘Volatility has stabilised, we’ve seen a pickup in earnings for the first time in five years and China is pumping liquidity into the system.’
One emerging markets fund Grant-Dalton holds is the Schroder Asian Total Return fund, managed by Singapore-based Robin Parbrook and King Fuei Lee. This fits Close’s ‘long-term cautious approach’ to the area by enabling it to ‘participate in the market’ but with ‘more downside protection’.
Grant-Dalton added: ‘It’s designed to give equity like returns without the volatility. The managers use large locally based research teams to select top stocks and can mitigate downside risk with tactical hedges. So you get long-only exposure but with less volatility.’
He also holds RWC’s Global Emerging Markets fund. This is due to its bottom-up approach and, once again, because manager John Malloy ‘has got a lot of skin in the game’.
Giving Gars time
Grant-Dalton said technology is one of the biggest drivers of recent performance. He has played growth in this sector through funds such as AXA Framlington Global Technology, but also through other equity funds with significant technology exposure.
In particular, he highlights the Baillie Gifford American fund. This holds the Fang stocks of Facebook, Amazon, Netflix and Google-owner Alphabet; and it has a 27.6% sector weighting towards information technology. The fund delivered 85.3% total returns in the three years to February 2018, compared to the 42.5% peer group average.
The Close balanced portfolio holds some absolute return funds, including Aberdeen Standard’s embattled Gars. Grant-Dalton said he would ‘monitor it closely’ but backed the strategy. ‘It’s been a relatively tough space for the sector as a whole,’ he said.
‘They’re obviously high conviction and it hasn’t been an ideal environment recently, but we want to give them the opportunity to make it right.’