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City’s Calder on the case for European small caps
by Elsa Buchanan on Dec 13, 2013 at 12:29
James Calder, head of research at City Asset Management, has sold his broad global equity and US exposure to buy small caps in Europe.
In the firm’s Balanced Discretionary portfolio, Calder (pictured) has reduced his US exposure to 11% below the benchmark, but has introduced an 8% overweight in Europe, where he bought Citywire AA-rated Ian Ormiston’s Ignis European Smaller Companies fund.
‘This part of the market has been overlooked for a number of years. Companies that have survived are in very good shape and are ready to take on new businesses. That screams potential for good growth,’ he said.
In the US, he still holds the Findlay Park American and CF Miton US Opportunities funds. Closer to home, he has increased UK exposure by 5% to 20% of assets this year, in light of improving economic data.
‘It’s not just the case of increasing the weighting to the UK equity space, but we are actually buying small cap managers there too,’ he said, pointing to the CF Miton UK Smaller Companies and the Old Mutual UK Dynamic Equity fund as key investments.
The latter has the advantage of being able to hold short positions in a FTSE 250-biased portfolio, he added. ‘In this environment, the manager is more often than not 100% net long, but at certain points in the cycle when the outlook is negative he can take risk off the table,’ he said. ‘We like managers that have that kind of ability.’
Calder finds diversification through specialist vehicles such as the Tritax Big Box Reit, the first UK listed ‘big box’ real estate investment trust, which invests in distribution centres such as Amazon.
He also recently bought Better Capital trust, which plays the restructuring story of businesses in financial distress.
In fixed income, where he has reduced his weightings by 6% to 16% of assets, Calder is looking for managers with a ‘high degree of flexibility’ to go short or invest in different areas of the bond market. He has added strategic bond fund managers alongside the Absolute Insight Credit fund.
‘It will be more and more difficult for traditional managers to hit our CPI +4% target over the short to medium term,’ he explained.
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