Japan’s disappointing fourth-quarter GDP growth figures have convinced Saunderson House investment director Christopher Sexton that Japan’s ‘Abenomics’ turnaround plan is not really working.
While Sexton (pictured) has retained a 3% allocation to Japan in the firm’s balanced portfolio, he has no plans to ‘ever increase it’. He said: ‘We’ve struggled to keep advisers interested in this basket case because historically, nothing has really changed when everyone said “Japan is back”. I’m not convinced Abenomics have worked.’
Since mid-2012, Sexton has taken his equity weighting from 44% to 66%, almost doubling his European exposure, and adding 4% to his UK allocation, which now weighs in at 28.5%.
‘The UK is cheap enough and the small and mid cap markets had a fantastic run last year,’ he said.
He recently took some profits from the Schroder Recovery fund, run by Citywire AAA-rated duo Kevin Murphy and Nick Kirrage. The fund has doubled the performance of the FTSE All Shares index, returning over 42% over three years.
Sexton has added a ‘tiny’ amount to his US weighting of 11%. While he has had to ‘look into dusty areas to find good managers’, Sexton cites the AXA Framlington American Growth and Fidelity American funds as top holdings.
He has retained a 6% allocation to emerging markets (EM) through the First State Global EM Leaders fund, run by AA-rated Jonathan Asante, and has recently bought into Somerset Capital’s Somerset EM Dividend Growth fund, managed by Edward Lam also AA-rated.
He prefers managers who avoid the ‘fragile five’ (Brazil, India, Indonesia, South Africa and Turkey) and focusing on export-orientated Taiwan and Korea. Taking a five-year view, however, he believes EMs could outperform developed markets.
Sexton holds almost half of his 21% fixed income exposure in the Schroder Absolute Return Bond fund, and ‘some of the slightly more risk-taking managers’, such as the Kames Strategic Bond fund, run by + rated David Roberts and Philip Milburn. For diversification, he has allocated 5% to Fidelity and Standard Life Investment’s Global Inflation-Linked Bond funds.
On property, Sexton is neutral to slightly positive with a 10% allocation. Despite not finding ‘many compelling opportunities’, he has exposure to commercial property through ‘a lot of investment trusts bought early at a discount and now trading at a premium’. Portfolios are focusing outside of London, and on distribution warehouses, which Sexton said are boosted by online sales.
The firm has no allocation to either hedge funds or long/short strategies.
Saunderson House’s balanced portfolio has posted a 10.9% return over 12 months, outperforming the ARC Steady Growth Portfolio benchmark’s 6.5%. Over three years, the model is up 8.1%, against the benchmark’s 5.4% rise.
Sexton also backs the GAM North American Growth fund, managed by ‘fantastic fundamental investor’ + rated Gordon Grender, and A-rated Andrew Rose’s ‘very steady ’Schroder Tokyo fund as top performers.
In a forward view, Sexton warns China's sizeable shadow banking sector could trigger a credit crisis, and he says he will be paying attention to European deflation.
Sexton added he could well be buying back into gilts, and adding to his emerging market 6% exposure on the back of cheaper valuations.