Former Gartmore fund manager Leigh Himsworth is of the view that many funds fail to really target the sector or region they claim they will, as ‘they’re more keen on guarding their own job' and as a consequence, hug an index or a benchmark.
Himsworth, manager of the new CF Eden UK Select Opportunities fund, which launches today, says the investment industry is regarding the index as a 'zero risk' starting point - which he believes is nonsense in the case of the UK.
‘The index is actually a very risky starting point for a number of reasons. There’s a stocks skew, the top 10 companies account for over 40% of the index or the benchmark, there’s a sector skew as well, concentration where three sectors account for over 50% of the benchmark - financials, oils and mining,’ Himsworth said.
'There’s also a currency risk where seven of the top 10 FTSE 100 companies report in a foreign currency, and that includes the likes of Unilever,' the manager continued. 'So without actually knowing it, the average investor that thinks they’re getting a low risk product is actually taking on a significant amount of risk in terms of stock specific, sector and currency.’
Eden's new fund will be seeded with £10 million, half provided externally and half from its wealth management parent Eden Financial, although Himsworth expects this figure to be ‘very different’ in three months’ time.
Speaking of many investors’ increased focus on buying into multi-national, large-cap and traditionally defensive sectors in an uncertain economic environment, he said: ‘People do that but almost ignore the risks in doing that… I don’t think [a] blanket approach is the right thing to do.’
Despite many investors being very negative on financials, Himsworth feels there is no need to crowd or shun entire sectors. ‘You don’t have to be underweight on an unpalatable sector, you can still be up to speed but in a very different way from the so-called index huggers out there,’ he explained, adding that his new fund will have a good deal of focus on non-banking financials.
F&C Asset Management is top of his list, in part due to chairman Edward Bramson’s straightforward style of business. ‘I just like the style of his management, no nonsense, reshapes businesses that are not broken but good brands that have been quite simply mismanaged for a period of time. It’s understandable in terms of balance sheet and it is geared into a market recovery.’
Also appealing are Royal & Sun Alliance and Brooks Macdonald with yields of 7%.
Although stricter regulation threatens the wealth and fund management sectors, Himsworth remains upbeat, saying ‘regulation and the likes of the Retail Distribution Review (RDR) is probably very good news for wealth management companies,’ which he says can benefit from ongoing consolidation in the IFA sector as firms struggle with onerous regulation.