Société Générale Private Banking Hambros’ portfolio management duo Eric Verleyen and Peter Haynes (pictured) have taken some profits on US positions, and plan to recycle the money into Europe.
Until two weeks ago, the balanced portfolio had a large US overweight mainly through a 4% position in Legg Mason Clearbridge US Aggressive Growth. Its biotech exposure proved a real attraction. Run by Citywire A-rated duo Richie Freeman and Evan Bauman, the fund has been their strongest performer with a 20.68% rise since it was bought in April.
However, the relative strength of sterling versus the US dollar has taken the shine off the portfolio’s unhedged US equity performance. Haynes explained: ‘We’re more conscious of relative valuations between geographical areas [and while] we don’t dislike the US, we think the gap between it and the eurozone is sufficient enough for us to take some profit out and redeploy into Europe.’
He is also considering a financial sector ETF. ‘That exposure would be more targeted than just buying an active fund.’
Hedged exposure to the GLG Japan CoreAlpha gives them a neutral position in Japan. The Citywire Selection pick, and one of Hayne’s top funds, is managed by +rated trio Jeffrey Atherton, Stephen Harker and Neil Edwards.
Haynes remains underweight emerging markets (EM), having sold out of his direct exposure last June, but says they are a long-term thematic play. He anticipates rebuilding this exposure but explained ‘valuations are cheap but it is still too risky to go into [EM] right now’.
Within the portfolio’s 18% bond allocation, he has reduced interest rate risk, favouring instead short duration high yield, subordinated financials and floating rate notes: ‘Our decision to not invest in government bonds added value across the board.’
The strongest performer was Jupiter Dynamic Bond, which added 7.4% in 2013, compared to the government bond benchmark, which was down 4.1% over the period.
Performance was also driven by the recent addition the Algebris Financial Credit fund, which has delivered 5% since its introduction last November.
The team has added 6% to its alternatives, moving overweight. They favour liquid Ucits long/short funds over traditional hedge funds, for the former’s ‘pricing structures, performance and liquidity’. Here they hold the Lxyor Absolute Return Mixed Assets fund, a daily trading fund with a volatility cap.
Haynes warned investors could feel the pinch, as he anticipates balanced portfolios will return ‘between 6% and 8%’.
Over the last 12 months, the model is up 13.59%, outperforming its composite benchmark, which rose 10.61%. Over three years, the portfolio posted 18.3%, compared to the benchmark’s 17.89%.
BUY: Italian Equities (Lyxor ETF FTSE MIB)
The new government is focusing on structural reforms necessary to transform the Italian economy. Q4 qoq GDP was in positive territory for the first time since 2011 and the market remains well below pre-crisis levels.
HOLD: US Equities (Legg Mason US Aggressive Growth)
Despite the soft economic data releases at the beginning of Q1, policy remains accommodative which should allow the reasonable growth trend to continue allowing corporate earnings to grow justifying current market valuations.
We remain negative on gold given the global economic outlook for average growth rates, relatively subdued inflation and future rising interest rates.