Eren Osman, senior investment manager at private bank Arbuthnot Latham, is keeping faith in Japan’s ‘Abenomics’ reform policies.
Throughout 2013, Osman built a 15% overweight to the country in the firm’s medium risk model, partly through a position in the Polar Capital Japan fund, managed by Citywire +rated duo James Salter and Gerard Cawley.
‘We’re supporters of their fund because Salter is looking to get some leverage out of the yen devaluation through exporters, buying into the yen making its way to $1.15 or $1.20,’ Osman said. ‘That’s what we’ve been keen to expose ourselves to.’
Similarly, he expects European earnings growth to continue to surprise on the upside compared to the US. This has led him to add to the long/short BlackRock European Hedge fund, taking it up to 4%.
‘[AA-rated manager Alister Hibbert] has got one of the smartest minds in the City when it comes to European equities.’
While overseas equities are accessed through funds, the portfolio invests in individual UK stocks. Osman has held housebuilder Taylor Wimpey for 72 months and profited from its 50% return over the past year.
This year, however, he is accessing the UK housing play through banks, particularly Lloyds, where the model already has a 1.12% allocation. In January, he sold out of LSE and added Barclays, where he has a similar exposure.
Long-term, Osman is playing the Asian consumer story, ‘ultimately buying into the thesis, despite the bumps’, he explains.
‘We maintain a high level of conviction in the rise of the Asian consumer. As hundreds of millions of people move into the middle class, their disposable income will allow for increase expenditure in consumer staples.’
‘There will be an opportunity for investors with a long-term time horizon to increase their allocation at some point in the near future, although not just yet,’ Osman said.
He is relatively positive on the US, despite the market being ‘at, or slightly above, fair value’, albeit underweight by 12%. US equity exposure is gained though a core passive holding in the Vanguard S&P 500 ETF and a ‘satellite’ allocation to the Vulcan Value Equity fund.
The model is light in fixed interest with a position in the Fidelity MoneyBuilder Income fund. He recently reduced his weighting to investment grade corporate credit and backs strategic bond funds.
‘We favour funds that are unconstrained and have allocated to Goldman Sachs Global Strategic Income, which currently holds a negative duration position,’ he said. A further 5% is held in the ICG Longbow UK Property Debt investment trust, which Osman describes as having a ‘fairly attractive expected 7% to 8% yield’.
‘Overall, I think hedge funds will play an increasingly important part of portfolios to help stabilise them,’ he said, highlighting a 13% exposure across the Old Mutual Global Equity Absolute Return - run by AAA-rated Ian Heslop and AA-rated duo Amadeo Alentorn and Mike Servent and Citywire Selection pick Standard Life Global Absolute Return Strategies funds. The latter is managed by AA-rated Guy Stern.
Over the last 12 months the model posted an 8.1% return, outperforming its IMA Mixed Investment 40-85% Shares peer group, which rose by 7.1%.
Over three years, the portfolio is up 17.7%, compared to a 17.6% rise by the IMA sector.
Shares have fallen 20% year-to-date based on lower than expected 2014 earnings, mostly driven by cuts in defence spending. We expect Rolls-Royce to significantly benefit from a major increase in aircraft production. Additionally, the company has made efforts to reduce costs and enhance its free cashflow.’
HOLD Coupland Cardiff Asian Evolution
We maintain a high level of conviction in the rise of the Asian consumer. There will be an opportunity for investors with a long-term time horizon to increase their allocation in the near future, although not just yet.’
SELL JP Morgan Strategic Bond
To reduce interest rate sensitivity we have cut exposure to investment grade corporate credit, including the JP Morgan Strategic Bond, which positions itself between 0-7 years duration. We favour unconstrained funds and have allocated to Goldman Sachs Global Strategic Income.’