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%).
‘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.’
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.
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.
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