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Performance review: where Heartwood’s Sippetts finds best value

Performance review: where Heartwood’s Sippetts finds best value

Alan Sippetts, Heartwood’s investment director, has reduced his exposure to the US but is maintaining exposure to its banking sector as a recovery play.

After a year in which US equities delivered a return of almost 30%, he has taken some profits and reduced his US allocation to 16.5% of the firm’s balanced private client portfolios. ‘It is not that we have less confidence in the US, but it has run its course for being an outperformer,’ he said.

Sippetts (pictured) has much of his exposure to the country in passive vehicles, including the Vanguard S&P 500 index fund, and exchange-traded funds (ETFs) tracking the small and mid cap markets.

His play on recovering American financials is held through a 3.1% position in the iShares US regional banks ETF. ‘We think the profitability and the compounding effect of positive returns on the US regional banks are set to continue,’ he said.

Some of the proceeds rotated out of the US were used to build his UK equity weighting up to 34.5%. Holdings include the Heronbridge UK Equity fund (6.3%), which soft-closed in December, and the JO Hambro UK Equity Income fund (5.9%), managed by Citywire AA-rated duo Clive Beagles and James Lowen.

Sippetts also holds the Vanguard FTSE 100 tracker for pure blue chip exposure.

In Europe, where he has built up his weighting to 7.2%, he holds the Fidelity Fast Europe fund, managed by Citywire + rated Anas Chakra, and the BlackRock European Dynamic fund, which was soft-closed in November.

Last year Sippetts slashed his emerging market position by more than a third, down to 3.1%. He said it was not an ‘anti emerging market statement’, but reflects the negative sentiment to the region, although he has maintained exposure to the First State China Focus and Aberdeen Asian Smaller Companies funds, which he said have ‘very specific objectives’.

Outside of equities, Sippetts is finding opportunities in property, where he has a 3% allocation. He points to the iShares UK Property ETF and the Segro and Derwent London Reits, which he says have an ‘equity-like character’, as his favourite picks.

Over the last six months, Sippetts has reduced his fixed income exposure by 5% to 20%, but says he has upped risk.

He has a 5.1% exposure to conventional government bonds, having brought down his allocation to inflation-linked paper, which is a mixture of UK index-linked and US Treasury inflation-linked bonds.

‘This has come down drastically, from being a major positive bet in the first half of 2013.’

He has added to both short duration US high yield and specialist floating rate note funds, however.

‘One real standout for us has been the Pimco Global Capital Securities fund, which had a stellar performance in 2013, and because of its exposure to the capital structure of European financial and banking sector credit, it still has legs,’ he said. ‘We will be maintaining our position.’

He cites ‘non-regulated monthly dealing and relatively illiquid’ specialist funds, such as the M&G European Loan fund (3.9%) as top picks.

‘We’re accommodating the relative illiquidity of the loan market, which is a very specialist market place, with what we see there as a floating rate contract. If we see a rising rate environment, or markets rate start to move anticipating a rise in rate, we’ll benefit.’


Over 12 months the model, which mirrors the Heartwood Balanced Multi Asset fund, has returned 13.81% with 7.82% volatility. Over three years, the model is up 16.27%.

Performance was largely driven by Sippetts’ allocation to the Heronbridge UK Equity fund, BlackRock European Dynamic and holdings in specialist corporate vehicles and property.

The portfolio’s US theme was supported by the iShares US regional banks ETF, which added 28.1% in sterling terms.

However, Sippetts believes cutting exposure to Japan too early was a missed opportunity. After enjoying the initial run, he took 25% profits after selling his 0.5% allocation, but says he could have ‘stayed longer’. Performance could have also been boosted by holding more European assets, he added.

He anticipates fixed income yields will continue rising and ‘to get any positive return, we will have to accommodate the greater risk in credit and fixed income.’

‘We’ll probably have a smaller weighting, because the investments we own are quite risky, certainly when compared to the long term volatility of inflation-linked and government conventional bonds.’

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