James Humphreys, head of research at Duncan Lawrie, said the team is sticking with Barnett’s fund, despite it suffering heavy redemptions over the last few months.
While the fund closed April with £7.8 billion of assets – a decline of £495 million from the amount recorded at the end of March – Humphreys remains confident of Barnett’s abilities.
‘Woodford’s departure was a loss, but Barnett is a very experienced manager. We’re happy the process remains the same and that he is very competent, although we are following Woodford closely,’ he said. ‘The fact that Woodford is negotiating with Invesco about direct sales confirms they are trying to avoid at all cost a lot of volatility in those stocks.’
He said his team had not made ‘dramatic’ changes recently to the private bank’s balanced portfolios, preferring to rebalance towards longer-term strategic positions.
A portfolio typically has 37% in UK equities through direct holdings, while actively managed funds are used for small and mid cap exposure.
Barnett’s fund sits alongside the Liontrust Macro Equity Income fund, managed by Citywire + rated duo Stephen Bailey and Jan Luthman, and the Artemis Income fund, run by A-rated Adrian Frost. Humphreys acknowledged that UK equities are not cheap but said any volatility over the summer could provide a buy opportunity.
A mix of vehicles, comprising the HSBC S&P 500 ETF and the Finlay Park American and Threadneedle American Select funds, make up his weighting to the US, the portfolio’s second largest at 13%. While this helped to drive returns last year, sterling’s strength against the dollar hampered recent performance.
Over 12 months, the model has returned 10.7%, outperforming the ARC Sterling Balanced Asset PCI, which was up 9.2%. Over three years, it has delivered 19.4%, versus the benchmark’s 14.2% rise.
In emerging markets, Humphreys is finding opportunities in Asia, with a 7% portfolio position in the Aberdeen Asia Pacific Equity and Newton Asian Income funds, managed by Hugh Young and Jason Pidcock respectively. Both are + rated.
‘Defensive funds performed well over the past years as the rest of the market underperformed,’ he said.
‘Although Woolnough‘s fund is large, the team seems to be able to keep up with the market, and performance hasn’t really suffered.’
Humphreys also backs the Twenty Four Dynamic Bond fund, which focuses on financial debt and asset-backed securities. The team has built up its alternatives exposure to 16%. Half of this is held in Standard Life Investment’s Gars, run by A-rated Guy Stern, and the Ignis Absolute Return Government Bond fund.
‘The latter cut its dividend last year, which we think was a positive step,’ he said.
Currently going through a period of consolidation as investors wait for further evidence that Abenomics is working. However, for those clients happy to tolerate the volatility of the Japanese equity market, we believe that this is a buying opportunity as we expect Abenomics to be positive in the medium-term.
HOLD: Emerging Markets
We believe that emerging markets provide an excellent long-term growth opportunity and exposure remains an important element of a diversified portfolio. Valuations are attractive and buying opportunities are appearing, although one must be selective and focus on those countries that are embracing structural reform.
Yields may currently underestimate how soon interest rates are likely to be raised. Also, if the Bank of England is determined to raise rates in a very gradual manner, the interest rate peak in this cycle may be higher than expected as they try to get ahead of the curve.