Vestra Wealth head of investment solutions Meena Lakshmanan has slashed her equity exposure by 10%, rotating most of this into cash as she looks to lock in profits.
This has reduced the equity weighting in the firm’s mid-risk model portfolio to neutral after being overweight last year.
‘After increasing allocation to equities in 2013, we realised that, if you look at last year’s earnings performance of equity markets, quite a lot has come in the US and Europe – at least on multiple expansion – as opposed to earnings,’ she said. ‘Therefore, we felt that if earnings disappoint even a little bit, the markets would be quite vulnerable to a pullback.’
The bulk of the proceeds, some 7%, has been moved into cash while Lakshmanan eyes other potential opportunities.
She has reduced exposure to European equities, moving to a neutral weighting. Last September, she took a position in the Alken European Opportunities fund, managed by Citywire A-rated Nicolas Walewski. She also owns AA-rated Alister Hibbert’s BlackRock European Dynamic fund and the Comgest Growth Europe fund.
Lakshmanan has also moved more neutral on the US, over what she considers stretched valuations and negligible earnings growth. She holds the Findlay Park American, T Rowe Price Small Cap Stock and Morgan Stanley US Advantage funds.
‘It is a stock-picker’s market, where some stocks have got carried away after rallying in 2013, in particular in biotech and technology, but where we have seen a very sharp reversal from growth to value this year. Against those pretty decent pullbacks, the markets are still up but stock specifics are being driven by big news events,’ she added, highlighting a continuation of share buybacks across the Atlantic.
Emerging market exposure
Lakshmanan believes emerging markets (EM) could provide better opportunities as earnings recover. ‘While consumer staples are very expensive in EM, trading at very high multiples, energy companies or industrials are trading on more attractive price to earnings ratios. If structural reforms are being enacted in the EM, and we don’t see another big “taper tantrum”, we could see signs of a pick-up.’
She highlights AA-rated Jonathan Asante’s First State Global Emerging Markets fund and A-rated Devan Kaloo’s Aberdeen Emerging Markets Equity fund. She also has exposure to Lazard Emerging Markets, managed by A-rated James Donald, and the Somerset Emerging Markets Dividend Growth fund, managed by AA-rated Edward Lam.
Further afield in Asia, Lakshmanan has retained her 4% weighting to Japan through the GLG Japan CoreAlpha fund, which she bought last July. The fund, managed by A-rated trio Jeffrey Atherton, Stephen Harker and Neil Edwards, is her sole position in the region. ‘After good returns last year, it has been painful this year. But we’re holding on to it,’ she said, adding she is waiting to see how prime minister Shinzo Abe’s policies play out.
While she believes bonds are fairly priced, she has reduced both her floating rate note exposure and short duration positioning, which protected on the fixed income side during the last year.
Earlier this year, the team moved back into longer-dated Treasuries, which has helped drive performance. ‘We were still short duration, but we went long because we felt that the long end was fine. It was the belly of the curve that we felt would come under pressure,’ Lakshmanan said.
Over 12 months, the model is up 12.35% compared to the ARC Sterling Balanced Asset index, which rose by 9.24% over the same period.