Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/wealth-manager/article/a697405
Why Dart Capital remains defensive and is dodging behemoth bond funds
by Elsa Buchanan on Aug 19, 2013 at 10:55
Dart Capital chief executive Richard Whitehead (pictured) continues to back blue chips and has moved into short-dated gilts and corporate bonds in a bid to reduce volatility.
Dart Capital’s medium risk model portfolio is currently looking ‘pretty defensive’ against an uncertain economic backdrop.
On the back of the recent housing market recovery and ‘cheap’ shale gas revolution, the model has 10% in the US, split evenly across ‘defensive’ JP Morgan’s US Equity Income fund and iShares S&P 500 tracker fund.
‘I use a tracker there because it is difficult for fund managers to perform [well] within that space, and use the fund for its income generation instead,’ he said, adding that equities trading at a premium means his exposure remains small.
Whitehead also seeks exposure to European blue chips through Threadneedle’s European Select fund. He notes that its key holdings generate most of their revenue from outside of Europe, including emerging markets.
In Asia he has a 5% holding in Citywire A-rated Angus Tulloch’s First State Asia Pacific Leaders fund, which he is again backing for the manager’s defensive stance. It is currently underweight cyclicals and the energy sector.
The model has a 2.5% cash allocation that allows ‘manoeuvrability’.
On the fixed income side he is looking to reduce volatility, having moved into short-dated gilts in case there is ‘a pullback in equity markets’.
However, he is retaining a preference for corporate bonds through the Threadneedle IF III Short Dated and JP Morgan Sterling funds.
‘You’re being compensated for the additional risk of holding corporate credit over government debt,’ he said.
While the corporate bond sector is dominated by a number of behemoth funds, he is favouring smaller vehicles, including the Jupiter Corporate Bond fund, run by Rhys Petheram, which he believes will perform better in the event of a liquidity squeeze in the market.
‘We like the fact it is quite small and underweight financials. It has a slightly higher quality bias than its bigger peers.’
Although he is cautious on emerging markets, he has a 3.75% exposure to emerging market debt through Capital International’s Emerging Market Debt fund.
Over the 12 months to the end of July, the medium risk model has returned 14.15% versus an 11.37% rise by the ARC Sterling Balanced index. Over three years, it returned 25.25% against a 22.19% rise by its benchmark.
Whitehead said both his underweight in commodities and miners alongside the model’s holding in Jupiter’s Japan Income fund have been strong drivers of performance so far this year.
However, wary that Japan’s strong performance is dependent on prime minister Shinzō Abe being able to deliver his reforms and a continued weakening of the yen, Whitehead said his exposure to the country is under review.
His 2.5% alternative allocation to the Absolute Insight UK Equity Market Neutral fund also helped boost positive returns and reduce overall volatility levels, while his holdings in the Threadneedle’s UK Equity Income fund run by AAA-rated Richard Colwell and A-rated Leigh Harrison served him ‘pretty well’ when the prospects of the UK economy improved in 2012.
However, his 3.25% allocation to the Eclectica Absolute Macro fund hampered performance as equity markets rose.
Whitehead remains nervous about issues ‘blowing up’ in Europe, pointing to Germany’s October elections, he added: ‘Big social factors could also play out in the eurozone’.
In emerging markets, Whitehead believes a number of Asian economies could continue to suffer from slowing Chinese growth, but he said he will continue holding First State’s Global Emerging Market Leaders fund because of its overweight in consumer staples and overall defensive stance.
News sponsored by:
Today's top headlines
More about this:
Look up the funds
- Fidelity MoneyBuilder Dividend
- Artemis UK Smaller Companies I Acc
- Investec UK Special Situations A GBP Acc Net
- JPM US Equity Income A Acc
- CLI Threadneedle European Select
- First State Asia Pacific Leaders A GBP Acc
- Jupiter Corporate Bond
- Capital International EM Debt X GBP
- Insight-Absolute UK Equity Market Neutral B1p USD
- Threadneedle UK Equity Income Inst Net Inc GBX
- CF Eclectica Absolute Macro A GBP Acc
- First State Global Emerging Markets Leaders III
Look up the fund managers
On the road
on Dec 06, 2013 at 14:28