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Why Anderson Strathern’s Hunter is keeping faith in EMD
by Elsa Buchanan on Sep 10, 2013 at 13:56
Ross Hunter, investment manager at Anderson Strathern Asset Management, takes the view specific areas of fixed income continue to offer value, not least unloved emerging market debt.
Nonetheless over the past 12 months he has reduced the balanced managed portfolio’s allocation to fixed income from 17.5% to 10%, marking an underweight since the beginning of the year.
‘After the asset bubble rumours, we savagely cut fixed interest down. Now we are focused on areas offering the greatest long-term value and those protected from inflation, especially index-linked and high yield,’ he said.
In light of the portfolio’s reduced fixed income allocation and with the intention of dampening equity volatility, Hunter has been playing the property revival through a 10% allocation to real estate investment trusts (Reits), including the CBRE Clarion Securities and Medicx funds.
‘We have not had any significant direct property holdings for the past two to three years, but have invested in global Reits on the back of the US and Asian economic recovery,’ he said.
The portfolio has an 11% allocation to US equities through the iShares S&P 500 ETF and the JP Morgan US Small Cap fund, alongside a 10% exposure to Europe, where Henderson’s European Focus fund represents a top pick.
Following the introduction of ‘Abenomics’ in Japan under prime minister Shinzo Abe, Hunter has hiked his position to 7% from 2% through Baillie Gifford’s Japan trust.
He also holds a small position in Legg Mason’s Japan Equity fund, which has benefited from its small cap exposure.
The portfolio’s 2%-3% cash position has remained unchanged. ‘Markets are quite high now, and while most advise to take profits now, I believe it is wiser to stay invested.’
Since the beginning of the year when Anderson Strathern changed its benchmark to Apcims Balanced, the balanced portfolio has returned 6.34% for the six months to the end of August compared to a 3.86% rise by the benchmark. Hunter points to his overweight in equities, especially Japan, as a key driver of performance, with the Japanese market being ‘the best performer by a mile’.
Moving out of fixed income hampered performance, however. ‘Coming out of it was a good decision overall. However, in the high yield sector, we thought emerging sovereign debt was better than developed market high yields.
‘I didn’t expect the extent of the sell-off after [Federal Reserve chair Ben] Bernanke’s comments on tapering quantitative easing in May. We’ve been hammered.’
The portfolio’s position in global Reits has also slightly underperformed on the back of the fallout from Fed taper talk in June, coupled with a perceived slowdown in China on Asian property markets.
Yet Hunter remains positive: ‘We still have a high conviction in emerging market debt, index-linked bonds and global property. We will hold on to our positions [in JP Morgan’s Global EM investment trust and Investec’s Emerging Market Local Currency Debt fund] until there is the recovery, which we are confident there will be.’
He see inflation as the ‘major threat’ in the short term. ‘We just need to make sure we have the nerve to hold our positions.’
With ‘measured optimism’, he anticipates more volatility in currency markets, with the dollar strengthening further, a continued drop off in emerging market currencies and a more volatile sterling.
In the ‘pretty highly valued’ US, he expects a short-term sell off but sees good long-term growth prospects once the bond buying programme finishes. He believes Asian markets are currently oversold but expects Australia and South East Asia to rebound in the short to medium term.
Buy: Lloyds and GlaxoSmithKline
‘The first has done well recently with strong financial results, the second has recovered and has a great product pipeline’
Hold: BlackRock World Mining Trust
‘I am positive again on the mining sector from a valuation point of view, after it was oversold’
‘Utilities and healthcare are especially vulnerable after the bull calls on defensive stocks’
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- Baillie Gifford High Yield Bond A Inc
- Standard Life Inv Global Index Linked Bd Ret Acc
- JPM US Small Cap Growth A Dis GBP
- Henderson European Focus Ret Acc
- Legg Mason Japan Equity A
- Invesco Perpetual UK Small Cos Eq Acc
- Schroder Income A Inc
- Investec Emerging Markets LC Debt A GBP Inc Net
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On the road
on Dec 10, 2013 at 12:57