Brown Shipley’s chief investment officer Peter Botham has slashed European equity exposure but remains positive that UK smaller companies can boost performance.
A 37% weighting to UK equities has been maintained in the IFDS Brown Shipley Income fund over the past 12 months, as Botham expects the macro environment to retain its status quo through to the end of this year. The Income fund is a proxy for a typical medium risk private client portfolio at Brown Shipley.
However, the weighting to European funds has been slashed from 8% to 4%, with positions trimmed in the Baring Europe Select, JO Hambro Capital Management (JOHCM) Continental European, Neptune European Opportunities, BlackRock European Dynamic and Standard Life European Equity funds.
‘I just think we’ll see far more of the same to the end of the year, the European problem won’t go away,’ he said. ‘The Standard Life Investments fund has been OK. It hasn’t made any money – in fact, it’s probably been down – but it has been more stable than other European equity funds because there have been others that have lost 10-20% across Europe.’
Fidelity MoneyBuilder, one of Botham’s top picks – which helps to make up some of the 19% allocation in fixed income – has helped to boost performance. ‘It has always delivered the goods,’ Botham said, adding that he had recently put money in to the GLG Global Corporate Bond fund for diversity.
The portfolio posted a loss of 2.4% over the last year compared with a 0.9% loss in the IMA Mixed Investment 20-60% sector average, after some of its holdings were hit in last summer’s market sell-off.
‘It was purely last August when markets came down. We just had a bit too much in the riskier side of life – equities and international equities and high yield debt. It was the high yield debt that got murdered. It’s done really well since,’ he said.
On a more positive note, the portfolio was bolstered by good performance in the ETFS Agriculture exchange traded fund (ETF). This has benefited from the recent rise in corn prices and Botham recommends it for its all-rounder properties.
‘We are not so specialist that we know that wheat is going to do better than rice, so for the non-specialists this is good.’
Volatility within the portfolio is 12.2 annualised.
Looking ahead, Botham is positive on funds with exposure to UK smaller companies, highlighting the attractiveness of the size of the investment universe, with many standing out against their identikit large cap peers.
‘We like that as a concept and we recently put quite a bit of money into the Diverse Income Trust run by Gervais Williams.
‘If you look at UK equity income funds they are all very similar because they all have Glaxo and Astra, but smaller cap funds have 500 companies to choose from. I just think at the moment if you are picking the right areas, some of the smaller cap funds are nimble enough to do really well.’
Generating income represents an important theme within the portfolio and Botham points to the JOHCM UK Equity Income fund and the Chelverton UK Equity Income fund, which yields over 5%, as favourites in that space.