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Performance review: why VWM Wealth’s Thomson is buying UK small caps

Performance review: why VWM Wealth’s Thomson is buying UK small caps

David Thomson, chief investment officer at VWM Wealth, has reduced his exposure to emerging markets and Japan in favour of UK smaller companies.

‘In the firm’s balanced portfolio, we’ve switched 10% out of the Far East, and gone into UK smaller companies, mainly the Unicorn UK Smaller Companies fund [run by Citywire AA-rated John McClure and Simon Moon],’ he said.

Thomson’s first started moving into small caps in 2010 when large caps were in favour.

‘Just about every man and dog was coming to us with a UK fund, which were just large caps with an international bias.

‘It was a contrarian move at the time, but we’ve kept adding to the exposure,’ he said, pointing to a favourite, AAA-rated Chris St John’s AXA Framlington UK Mid Cap fund, as another core holding (12.5%).

He has 50.7% exposure to UK equities with the balanced portfolio’s largest position being in Liontrust Special Situations, managed by AA-rated duo Anthony Cross and Julian Fosh.

‘The fund had a relatively poor year in 2013, but it was still up 20% when the market was up 23%,’ he said. ‘It will come back into its own.’

He also holds the SVM UK Growth fund, run by Citywire AAA-rated Margaret Lawson and Colin McLean.

Globally, Thomson has also moved money into European smaller companies, with 11% exposure to the Continent.

‘We briefly flirted with Japan in spring last year, but went in too late. It was one of our not so great calls, so we exited and moved back into the Standard Life Investment UK Smaller Companies fund.

‘We’re giving Japan serious consideration again, as I think Abenomics could work and there could be a lot of money to be made, but at the moment I’m not a great fan,’ he added.

Instead, he has favoured Ignis European Smaller Companies, run by AA-rated Ian Ormiston, and AA-rated Chris Garsten’s GMP Senhouse European Focus fund.

Thomson uses a number of passive funds to capture growth in the US with an 8.5% allocation to the HSBC American Index fund, and a 7.5% holding in the Fidelity MoneyBuilder US Index.

In more defensive portfolios, Thomson has taken profits from ‘UK larger caps funds’ and the Vanguard Corporate Bond tracker, rotating into Standard Life UK Property.

In fixed income, to which he has a 21.5% allocation, he favours the ‘adventurous’ Baillie Gifford High Yield Bond fund, run by + rated Robert Baltzer and Donald Phillips.

Over the last 12 months, the VWM Balanced model has returned 12.08%, outperforming the IMA Mixed Investment benchmark, which rose 7.87%.

Thomson warned the FTSE could remain ‘flat until at least the summer’. However, he anticipated the index could reach 7,300 before year-end, with returns averaging 10%.

Buy: UK physical property

The late economic cycle investment provides good income stream, and is relatively stable

Sell: the Far East

I’ve sold over concerns about China’s slowdown. Fortunes of both emerging markets and commodities are tied to it.

Hold: Smaller companies

They’ve had a good run and there is still some more to go for, as economic conditions continue to improve

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Chris St John
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4/10 in Equity - UK Medium Companies (Performance over 3 years) Average Total Return: 87.74%
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67/151 in Equity - UK (All Companies) (Performance over 3 years) Average Total Return: 54.14%
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3/7 in Bonds - Europe High Yield (Performance over 3 years) Average Total Return: 46.31%
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4/7 in Bonds - Europe High Yield (Performance over 3 years) Average Total Return: 46.31%
Simon Moon
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28/57 in Equity - UK Smaller Companies (Performance over 1 year) Average Total Return: 2.51%
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