Manager focus: Simon Nichols

5 February 2010 | By Stefanie Eschenbacher

Investing across the corporate capital structure and limiting the fund’s equity exposure to 60%, he says, will appeal to more cautious investors in an environment where growth is constrained.

The fund moved from the Investment Management Association’s (IMA) Balanced Managed sector to the Cautious Managed sector in January.

Nichols turned over some 15% of the portfolio, reducing the equity weighting from 71% to 57% and increasing the weighting to bonds from 22.8% to 35.7%. The fund’s cash level stayed at about 6%.

“It can go wrong in two ways; it can either create inflation or a double-dip recession”

“In terms of equity sales, I reduced those equities with high yields where there was limited scope for dividend growth,” he says. “I took out equities that were bond-like in their characteristics.”

One holding he has cut is the F&C Commercial Property Trust, which offers investors a “fairly high dividend yield”. However, he adds, there is not much scope to grow dividends.

He has also reduced holdings including BBA Aviation, a provider of aviation services and systems, Greene King, a pub chain, Österreichische Post AG, an Austrian postal service, and the UK Commercial Property Trust.

“I also reduced some equities which had done well into the risk rally of last year, and the third party funds the portfolio had held,” he says. These include the Findlay Park US Smaller Companies fund, the Henderson Smaller Companies Investment Trust, and the Schroder Oriental Income fund. He also reduced holdings in Swire Properties, a Hong Kong-based property developer, and Brazilian mining company Vale. (article continues below)

Nichols then cut large equity positions in BP, HSBC, PZ Cussons, which develops brands in selected mature and emerging markets, and Standard Chartered.

In turn, he added to bonds. Land Securities replaced the fund’s equities weighting in property, and he also bought Cable and Wireless and Sprint Nextel, which he describes as “good value sub-investment grade bonds”. 

First Group, Imperial Tobacco and Reed Elsevier, Nichols says, are all BBB-rated names with decent absolute yields of 5% or more.

He also sold some financial bonds in Lloyds TSB and Yorkshire Building Society.

There were also some changes at the sector level. As a result of the revamp, the fund’s weighting to oil is now 2% lower than before. The weighting to banks is 1% lower and the weighting to property is 2% lower. In addition, Nichols reduced the exposure to third party funds by 4%.

On the equity side, he moved out of banks, mining, oil, and smaller companies. On the bond side, he bought bank bonds and real estate.

“Property has had a massive bounce. The sector was attractive in 2008 [but] most property stocks are now trading at a premium to their NAV [net asset value],” he says.

Nichols says mining remains an attractive sector, mainly because of its long-term structural growth opportunities.

In the banking sector, he prefers banks with strong overseas earnings, holding DBS, HSBC, and Standard Chartered. The growing credit market in Asia, which tends to be much less overleveraged, looks more attractive to Nichols than Britain’s shrinking credit market.

“The environment is very uncertain at the moment,” he says. “Authorities are on a tight rope of getting monetary policy right. It can go wrong in two ways; it can either create inflation or a double-dip recession.”

Yet he expects the equities and bonds chosen for the Newton Cautious Managed fund to perform well as they depend less on an economic recovery.

BNY Mellon Asset Management has announced a special offer of 0% initial charge for the fund effective until May 31, 2010.

The group has reduced the annual management charge from 1.5% to 1.25%. These changes were implemented on December 31, 2009.

Have your say

Please do not complete the following form field for security reasons.

Name

E-mail

Comment

Post as

Anonymously

Display name

I have read and agree to the terms and conditions