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Fly on the wall: what Dart Capital bought and sold

Fly on the wall: what Dart Capital bought and sold

Last month Wealth Manager was given exclusive access to Dart Capital’s year-end asset allocation meeting, where the team evaluated whether their decision to raise exposure to fixed interest and slash commodities had paid off.

The firm, which is headed by chief executive Richard Whitehead (pictured) and operations director Matthew Wille, has £195 million in assets under management with an average client size of £1 million, and a £250,000 minimum investment level.

The average balanced or medium risk portfolio, which has 63.9% in equities and 23.3% in fixed interest, achieved an 8.4% return in 2012 net of fees, which Whitehead says he is pleased with.

‘[Performance] is quite satisfactory considering the amount of defensive positioning at times last year. We have avoided long-dated gilts and focused on credit within fixed income,’ he explained.

Whitehead held short-dated gilts alongside cash to hedge against the regular bouts of volatility which he saw as ‘inevitable’. The medium risk portfolio was protected during the tougher month of May with one of Dart Capital’s strategies of having an especially low beta of 0.42, well below its budget of 0.5.

‘This is one of the lowest numbers we have had for a long time. Some of that is going to the stability that the bond market is operating in, it’s an almost false level of volatility. But I don’t want to be lulled into a false sense of security there,’ he said.

‘You would have expected more volatility than that. It just shows the enormous appetite there has been to rotate out of gilts and cash.’

Moving out of alternatives

Dart Capital has been gradually moving money away from alternatives in favour of fixed interest, and within that has been increasing short duration exposure, adding to the Smith & Williamson Short Dated Bond fund.

‘That has worked very well for us this year,’ he said. ‘Our tactical shift against absolute return early in the year and alternative strategies has worked. Any holding in commodity-related areas has been poor but thankfully we did not hold much.’

After increasing commodity exposure during 2010 and 2011, Whitehead moved to cut positions in commodity funds which had proved a drag on performance, such as the Russell Openworld Commodities Long Neutral fund. The Investec Enhanced Natural Resources fund which he topped up in 2010 has also struggled, returning 2.18% over the last three years compared to a 14.23% rise by the FTSE AW/Oil & Gas TR benchmark.

In February last year Whitehead took a position in the Fidelity Moneybuilder Income fund, a Citywire Selection pick, which is run by Ian Spreadbury and has a 4.2% yield. At the same time he took a position in Richard Woolnough’s M&G Strategic Corporate Bond fund which delivered a 14.25% return last year.

He also backs the Kames High Yield Bond fund, managed by Philip Milburn.

Strong performance also came from the Cazenove UK Smaller Companies fund, run by Citywire AAA-rated manager Paul Marriage and Threadneedle UK Mid 250, another Citywire Selection pick. 

‘Managers have delivered roughly as expected with exceptional performance from Cazenove and Threadneedle UK Mid 250 and disappointing relative numbers from Jupiter Japan Income and our commodity exposure,’ he said.

Outlook for 2013

During the meeting the team looked at the outlook for 2013 from a number of large research houses, but ultimately agreed that the climate is too uncertain to be tweaking its asset allocation models.

‘From an asset allocation perspective we still have quite a lot of uncertainty,’ Whitehead said. 

He added that he tended to agree with the growing idea that wealth managers will need to be more dynamic with asset allocation in future, given the precarious situation where investors have flocked to bonds and the risk that a bubble has formed.

‘There is this argument that asset allocators are going to have to be more flexible in their approach, not simply having the kind of structures that means you are forced into buying government bonds in particular,’ he said.

‘That flexibility allows you to move those boundaries. If we were in a bubble then [over the last year] we are in more of a bubble now, and not just with government bonds but perhaps in the area of credit.’

Nevertheless the team decided to sit tight with its exposure and monitor developments as 2013 develops.

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