Commodities – primarily gold and oil – and pegging down overall fixed income exposure have been the biggest contributors to Vestra Wealth portfolios over the past year, said company founder David Scott.
While gold is mainly held as a hedge and, at between 5% and 6%, is not a significant asset allocation, having been held since it was priced at $700 its positive contribution has been disproportionate.
Likewise, a shift from corporate to high yield debt and a downgrading of exposure from around 12% to 8%, have not been decisive in terms of scale but have produced a disproportionate returns.
The biggest detractor over the past year has been the company’s exposure to absolute return and hedge funds, which before being recently downgraded had consistently been as much as 15% of exposure and as much as 20% at points in the past 12 months.
‘Performance has been much more disappointing than it was in 2008,’ said David Scott, who added that the heightened volatility and uncertainty of the past year should have provided optimal opportunities for the sector.
While the company continues to hold the most successful strategic multi-asset mandates in its portfolio such as Ruffer and Artemis Strategic Assets, it has divested many of its less successful holdings such as the HSBC Macro fund, and several single strategy mandates.
A strong run on equity was also beginning to look as if it was reaching its full potential and the company was moving toward a more cautious approach, Scott added.
‘I don’t think people have cottoned on to how much [central bank] liquidity has kept things going,’ said Scott.
‘We have come through these crises such as Japan and disruption in the Middle East and I think people’s perception is that things have held up well.’
His primary concern is what happens when the US Federal Reserve begins to turn off the taps and move toward tightening, which the company expects to see in Q3 or Q4. He added that from current pricing, it is hard to see a great deal of upside on commodities, and in particular oil.
‘We are just trying to decide when we want to get off. Obviously we are not going to get it right on the button.’
Until then, the investment team is seeking more strategic exposure via mandates such as the L&G Dynamic Bond fund.