My last trade: 10 wealth managers' most recent investments
Matthew Hunt, investment manager & branch principal, Prospect Wealth Management, London
Since Donald Trump was elected on 8 November the US Dow Jones index has risen 10% on the hopes of tax cuts and infrastructure spending. This good news is now fully reflected in a stock market valuation that is expensive on the basis of a cash flow yield. What is not reflected is the risk of a trade war developing with China, interest rates rising faster than expected or a strengthening in the dollar. Having been overweight in US equities we are now shifting underweight.
European equities by contrast offer better value, partly due to the perceived threat to the euro posed by at least three national elections this year. Prospect take the view that a populist upset is unlikely in Europe and believe this is the time to add to an attractively valued market where low interest rates and increased bank lending are supporting economic recovery. Price momentum of European relative to US equities has just turned up in a telling signal that now is the time to take profits on the US and buy Europe.
Christopher Peel, CIO, Tavistock Wealth, Bracknell
The last trade was to increase the level of the non-UK investments in the portfolio hedged back to sterling. The overwhelming view in the market is that sterling will remain weak and potentially trade even lower during the Brexit process. Consensus forecasts are very often wrong and can lead to complacency.
The fall in sterling is arguably overdone and the pessimism surrounding the post-Brexit economy is even more exaggerated. Countries such as the US, China and Australia are queuing up to negotiate trade agreements with the UK that will eventually increase the demand for sterling. The UK is likely to retain most of its trade flow with the EU, given its geographic proximity and that it imports more goods than it exports to the continent. The period of uncertainty is coming to an end and the need to hedge the international exposure in the portfolio is more important than ever.
Alastair George, fund manager, 8AM Global, London
We sold out of our holding of the JPMorgan Russian Securities investment trust. With a total return of just under 100% since acquisition in January 2015 this was a good example of the 8AM Tactical Growth investment philosophy of being prepared to invest in out of favour segments of the market, but in a measured way.
There was a perfect storm for Russian securities at the time which meant that Russian equities were trading at only 60% of book value - close to the lows for the last 15 years. Furthermore, we benefited from a dividend yield of over 5% which was also close to a record. Adding to the attraction was the collapse in the value of the rouble due to the decline in the oil price. The oil price was a key part of this trade and we did have a macro view that it should stabilise in the $50 range - which proved to be the case.
It is of course much easier to see in hindsight that the decline in the oil price was the trigger which opened up the equity value and dividend income opportunity. In 2017, we have now reached the point where Russian equities have strongly re-rated - and an opportune time to exit the position.
Andrew Gilbert, investment manager, Parmenion, Bristol
We’ve recently increased our passive exposure within Japan and Government bonds within our PIM Strategic Conviction solution. These changes have been made on the back of ongoing trends in the quantitative data which we monitor on a frequent basis, on the anticipation that these funds are likely to outperform in the future.
Tom Davies, senior investment manager, Quartet Investment Managers, Richmond
We took some profits on our clients’ index-linked Gilts position in the autumn of last year following a strong run throughout 2016. We reinvested in TIPS as US inflation expectations were much lower than those in the UK. We viewed this as an anomaly and therefore an opportunity that allowed us to realign our clients’ inflation-linked bond exposure with changes in our expectations for inflation and interest rates.
The average duration in the TIPS market is much lower than that in the index-linked Gilts market (TIPS 8 vs. 23 for Index-Linked gilts) which was also attractive given the increasing probability of rising interest rates. This was also an opportunity to increase US dollar exposure following the rally in sterling in August/early September.
Andrew Herberts, Head of Private Client Investment Management, Thomas Miller Investment, London
Last year’s marked underperformance of mid cap versus large cap stocks in the UK as a group has opened up a valuation gap that historically has not persisted. In the light of this we have re-jigged our holdings in UK equities and reduced our exposure to the large cap space and increased our position in mid caps. While we discussed simply using a FTSE 250 ETF we believe that there will be opportunities for active managers to add value in 2017 and so looked at the funds operating in the area. Of the current crop of relevant managers, our team prefers the Neptune UK Mid Cap Fund and we added to positions, funding this from a UK All Share tracker. The areas that the fund is exposed to should benefit from a decent fundamental backdrop and may also see boosts from M&A activity from overseas buyers.
Paul Wharton, chief investment strategist, Tacit Investment Management, London
Our house view, is that after nearly a decade of macroeconomic policy dedicated to budgetary discipline, austerity if you like, the failure of monetary policy alone to raise growth rates to acceptable levels would lead to the reintroduction of fiscal policy to support growth.
On both sides of the Atlantic, this seems now to be happening albeit slowly but backed by heavyweight opinion from the IMF and the OECD.
We recently added a holding in M&G recovery to capture this cyclicality as the economic recovery in the developed world begins to gather pace.
The election of Donald Trump will divide opinion but he inherits an economy in good health and his program, such as it is, signals a return to reflationary and pro-cyclical economic policy. This will feed through to UK dollar earning cyclicals and domestic growth more broadly as the UK seeks new trade deals with the rest of the world including the US.
Etienne de Merlis, CIO, Signia Wealth, London
Trump’s election coincided with the end of the earnings recession in the US, a pick-up in activity indicators globally, the stabilisation of energy prices and an increase in headline inflation. Equity markets are reaching new highs and government bonds yields have moved up significantly. Whilst we do not necessarily disagree with this optimism, we believe the risks might be more balanced and volatility should pick up.
To offset this risk-on positioning, we have added to our macro protection strategies by buying a dispersion trade. This trade plays volatility of single stocks against the volatility of a basket or an index and will benefit from higher volatility (usually associated with sharp falls in risk assets) and thus offset losses in portfolios when we need protection. It has the added benefit of reacting well during sharp sector rotations. We have held this type of trade since last year and they reacted extremely well in the first two months of 2016, the Brexit period and during the US election.
Jim Wood-Smith, CIO private clients & head of research, Hawksmoor Investment Management, Exeter
We moved back into resource stocks and emerging markets last summer. Hawksmoor’s investment style is to blend value, quality and momentum; merely rely on the first two of these can lead to grabbing falling knives and we prefer to wait until we are sure that momentum has turned. Having been reassured that prospects for the Chinese economy had shifted for the better, we were waiting for reassurance that the bear market in resource stocks had run its course.
We finally got the signals that we wanted over the course of the summer and we started to build positions in miners, oils and other emerging market sensitive businesses, such as Standard Chartered. A number of these positions are now sitting on gains of 50% or more over past four or five months and we have started to reassess whether there still is value in these stocks or if these are now popular momentum-driven bandwagons.
Joeroen Bos, investment director and fund manager, Church House Investment Management, London
We bought shares in British Land Company Plc (the property company) which, like most in the sector, has seen a fall in tgheir share price of over 20% since the the brexit vote in June 2016. Although the immediate outlook for the property sector in the UK may be unclear at this stage, we believe that the sector, and in particular British Land, offers good value.
In 2015 the share price hit a high of 886p and has since then steadily declined to the current share price of 585p, a price fall of 30%. However in the meantime the net asset value (nav) per share has continued to grow and it is now trading at a discount of 33%, while not long ago it was trading at a premium to it. The relatively high discount to nav and the support of a dividend yield of 5%, backed up bya strong balance sheet gives us confidence to buy the stock at current levels".