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Tony Lanning: my five big asset allocation calls

Tony Lanning, who joined JP Morgan from Henderson last year to run multi-manager portfolios, has shared five major themes driving his Fusion funds.

Tony Lanning, who joined JP Morgan from Henderson last year to run multi-manager portfolios, has shared five major themes driving his Fusion funds.

The range of five risk-profiled funds launched in March 2013. The Balanced fund has returned 3.34% since then compared with 1.84% from its multi-asset benchmark, with 5.34% volatility. The Growth fund has returned 4.57% versus its benchmark’s 2.52%, with 6.54% volatility.

Lanning said he was pleased with that risk/return mix.

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Japan

Japan is one of Lanning’s highest conviction plays, and he accesses the market through the Polar Capital Japan fund, managed by the + rated pair of James Salter and Gerard Cawley. Over the past three years, the fund has retuned 10.3% compared with 12.3% from the Topix.

Recently Lanning has also added the GLG Japan CoreAlpha fund, run by the + rated team of Jeffrey Atherton, Stephen Harker and Neil Edwards, which has returned 16.7% over the past three years.

His holdings in both are currency hedged. ‘We have hedged the yen because we did feel that yen weakness would be a driver of the Japanese stock market, although it may be less so going forward.’

But Lanning also argues that neither was dependent on a soft yen. ‘The managers that we own are very stock specific, and they are very clearly giving us the message that they don’t believe that their investment story is reliant on the yen weakening any further from here.’

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Commodities

Lanning has been lured by the prolonged slump in the natural resources sector, and has bought the db x-trackers Stoxx Europe 600 Basic Resources exchange-traded fund for all but his lowest risk portfolio. This tracker of large cap European miners has lost 30% over the past three years.

The manager described this position as a ‘tactical trade aimed at exploiting the severely depressed sentiment in the mining sector’.

He added: ‘We could have invested in any number of actively managed collective vehicles, but we felt that this passive vehicle was the most appropriate way of playing that theme.’

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Emerging markets

In contrast, Lanning has yet to be fully tempted by the low valuations of emerging markets. He has instead trimmed his exposure to them ‘at the margin’, including by selling out of the Aberdeen Asia Pacific fund, which has lost 2.5% over the past three years while the FTSE AW Asia Pacific ex Japan index has gained 0.6%.

‘It has been more about focusing on the parts of emerging markets that we feel comfortable with,’ Lanning explained. For example, he has retained the GAM Star China fund, which under + rated manager Michael Lai has returned 10.6% over the past three years while the MSCI Zhong Hua index has lost 0.4%.

‘There is good and bad EM,’ Lanning said. ‘There are some countries in emerging markets which frankly probably do deserve to have weakening currencies, countries with large current account deficits like Turkey and South Africa. But other countries in emerging markets do benefit from their currencies weakening.’

He added: ‘For medium to long-term investors, now might be a very good time to start selectively adding to emerging markets.’

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Fixed income

Lanning insisted that straightforward bonds still had a role to play in his funds, despite widespread anxiety about the impact of rising interest rates.

‘Each of the Fusion portfolios should be properly diversified. It makes sense to us that there are going to be times when we hold assets in the portfolio that maybe don’t look like our best ideas, but they are there for a reason,’ he remarked. ‘If growth were to disappoint or we had a period of risk off in markets, then – as we saw at the end of January, beginning of February – fixed income actually did provide some ballast in portfolios.’

Lanning is nevertheless underweight duration through the Fusion suite, and recently sold his iShares FTSE UK Gilt exchange traded fund. But he advised that ‘if 10-year gilt yields rallied to 3%, we would be tempted in the short term to add duration’.

He remains positive on high yield, although he recognised that ‘valuations aren’t as compelling as they were’, and convertibles. He has also recently bought into the BlueBay Investment Grade Absolute Return Bond fund; managed by A-rated Raphael Robelin, the fund has returned 3.9% over the past year compared with an average of 0.1% from its peer group.

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Alternatives

Lanning has also turned to other absolute return funds as an alternative to traditional fixed income, including a recent switch from the Eaton Vance Global Macro fund into the Pioneer Absolute Return fund. The former has returned 0.1% over the past three years, and the latter 3.1%.

Furthermore, Lanning has increased his stake in the Melchior European Absolute Return fund ‘as a barbell’ to balance his higher equity exposure. The long/short strategy has returned 0.1% over the past three years.

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Raphael Robelin
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9/18 in Bonds - Absolute Return (Performance over 1 year) Average Total Return: 4.30%
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21/53 in Equity - Japan (Performance over 3 years) Average Total Return: 32.79%
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22/53 in Equity - Japan (Performance over 3 years) Average Total Return: 32.79%
Neil Edwards
Neil Edwards
23/53 in Equity - Japan (Performance over 3 years) Average Total Return: 32.79%
Michael Lai
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48/61 in Equity - Asia Pacific Excluding Japan (Performance over 3 years) Average Total Return: 12.66%
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