How Threadneedle’s Thornber is playing bank deleveraging

Citywire A-rated Stephen Thornber, manager of the Threadneedle Global Equity Income fund , is looking to benefit from bank deleveraging by backing private equity and alternative investment firms that are able to step in where banks are withdrawing.

The manager has spent the past 18 months building up positions in alternative investment firms that can buy assets from banks or other forced sellers at attractive valuations, alongside those that are able to move into markets that have traditionally been dominated by the banks.

Key holdings include Apollo Global Management, private equity firm Blackstone, UK-based Intermediate Capital and Newcastle Investment Corp.

Thornber told Wealth Manager: ‘[Apollo] has been acquiring assets directly from banks and the other avenue open to them is to step into markets where banks are withdrawing.’ More broadly, he cites new entrants to the funding market for shale gas projects as one example of a new opportunity, and his holding Intermediate Capital’s decision to increase its presence in the UK small and mid cap lending market another.

It is a play that has paid off over the past 12 months, helping to contribute to the fund’s 29% return over the past three years and 4.7% yield. This compares to the FTSE World index’s 22.5% rise, according to Lipper.

Admittedly to his own surprise, Thornber notes that Japanese real estate investment trusts (Reits) Industrial & Infrastructure fund, Activia Properties and Daiwa House Reit Investment proved significant contributors of performance over the past year. For example, Industrial & Infrastructure fund is up 55% over the last year in dollar terms, with expected dividend growth of 10% this year and a current yield of 4.3%.

While some emerging market, Asia and US-related holdings were hit by fears over the Chinese slowdown and US fiscal cliff respectively during the second half of the year, he remains upbeat on both markets looking ahead. He added to the fund’s emerging market and Asia exposure in late 2012.

‘As we approached the end of 2012, there were big questions and issues surrounding the eurozone, the Chinese slowdown and leadership change and the US fiscal cliff. We had the Chinese leadership change towards the end of the year and a marked slowdown leading up to that, but we felt it was quite similar to what we saw in 2002 when there was the last leadership change.

‘There was a natural slowdown in activity because people were waiting for the new leadership, so we started adding to Asia-related stocks in the hope of improved confidence at the end of the year.’

The fund is overweight emerging market telecoms, which he sees as a way to access population and economic growth in the region. Holdings include Digi.com, FarEas Tone, and StarHub. ‘Regulatory controls are less stringent than in Europe, and we are starting to get the early penetration of smart phones and data usage,’ he said.