Redmayne-Bentley investment manager Carolyn Black has outlined the stocks she expects will drive the performance of private client portfolios this year.
Black is currently allocating around 50% of a balanced private portfolio towards direct UK equities and has added a defensive tilt to portfolios, backing companies with strong management with a ‘strong story behind them with a yield’.
‘We could see a bounceback in non-cyclical defensives if things drift off a bit,’ she said.
The investment manager anticipates an uptick in international merger and acquisition (M&A) activity as multinationals look to put their large cash piles to work.
With the group forecasting that the FTSE 100 will finish the year around the 6,100 mark, Black said: ‘We could see incredible volatility but not an awful lot of progress on the upside. Nonetheless, corporate balance sheets are in good shape at the moment and may be somewhat sheltered from the woes of the economic backdrop.’
As a result, she has taken some profits on Aggreko and BHP Billiton, adding to Morrisons and National Grid. Multinationals GlaxoSmithKline, Diageo and Tate & Lyle also feature in the portfolio, with Black keen to highlight the 3%-4% yields they are paying.
However, after Morrisons’ underperformance during the Christmas period, Black said she was cautious on the stock.
‘It has got a reasonable yield, but I am quite cautious on it in light of its underperformance at the end of last year and the shift in management, as they still need to bed in there. Morrisons does not have internet or international exposure yet or the equivalent of Tesco Express. They are trying to develop this, but are they too late?
‘On the other hand, the new CEO has a good reputation and can learn from the mistakes that Tesco and Sainsbury’s made when they were rolling out their express and delivery services.’
Forming part of the trend towards yield, Black has also initiated a position in the M&G Global Dividend fund. She is also maintaining exposure to commodities through BHP Billiton, albeit slightly trimmed back this year. On any weakness, she is planning to add to the portfolio’s underlying gold position through the PHGP ETF, forming part of her move to inflation-proof private client portfolios for 2011. Gold sits alongside infrastructure trusts and inflation-linked bonds as part of this strategy.
‘We have got as much inflation-proofing as possible,’ she said. ‘Gold and infrastructure provide growth and inflation protection. Quantitative easing and government intervention have played a big part in fuelling inflationary concerns and we are already feeling petrol and food inflation.’
Although inflationary pressures in the UK are not as prominent as they are in India and China, she said: ‘I can’t help but think that there are a lot of inflationary catalysts in the system.’
The 6% yield on the John Laing and HSBC Infrastructure vehicles also adds to the appeal of these underlying investments, Black says, helping to contribute to the balanced portfolio’s 3.1% yield. All portfolios are run on a bespoke basis, with this example selected as indicative of Black’s investment style for medium risk clients.Over the past 12 months, the balanced portfolio is up 17%, while the Apcims Balanced index was up 12.04% over the same period. Over three years, the same portfolio posted a 9% return, while the Apcims index rose by 17.6%