Sarasin’s Lucy Walker was well positioned for the bounce in value stocks this year, although she admits she was a little premature in adding a value tilt to the fund of funds portfolios.
Walker bought Schroder Recovery last August, which she says was “a bit early”, but the fund has served the portfolios well in recent months, having outperformed the FTSE All Share by 7 per cent year to date.
A 1.65 per cent position in the Sarasin Fund of Funds Global Strategic Growth fund, the purchase of Schroder Recovery was funded by the sale of the Ardevora UK Equity fund, a mid-cap growth mandate Walker says they had “done very well out of”.
“On a relative basis we felt there was an enormous opportunity in the Schroders fund,” Walker says, speaking ahead of the EU referendum. “It was top decile over a decade but in the 90th centile over one year. It was bottom of the pack. That is not a sensible way for investors to be looking at stocks.”
The sale of the Ardevora fund also funded a 0.9 per cent position in the Evenlode Income fund, a low- beta fund investing in quality names that Walker says blends well with the Schroders fund and provides an element of protection.
“The bounce in value this year is minute if we compare it to the outperformance of growth since 2008. It could have substantially further to go, but it won’t be without volatility. If we were convinced that value will outperform for the next few years we would have all our money in Schroder Recovery, but we are pragmatic. The Evenlode fund helps to manage risk.”
Walker manages the four funds of funds with deputies Alistair Campbell and Jamie Fletcher. The Strategic fund sits at the lowest end of the risk spectrum with 40 per cent in equities while the Global Equities fund is at the higher end with 100 per cent equities. Both funds launched in June 2012. The Diversified and Global funds, launched in December 2014, sit mid-range with 60 per cent and 80 per cent in equities respectively. In total the four funds have about £100m in assets under management.
Over one year Sarasin Fund of Funds Global Strategic Growth has fallen 3.5 per cent against the 2.6 per cent average decline in the IA Flexible Investment sector (FE data).
The fund of funds team uses a top-down philosophy, with fundamental decisions driven by the firm’s investment policy committee, of which Walker is a member. “I can be reactive or proactive and have Alistair and Jamie to help with fund selection. We have our own agenda too; it is a two-pronged approach,” says Walker.
The largest holding in all four funds is the Vulcan Value Equity fund, a long-term holding that Walker introduced to the portfolios in 2013. A high-conviction US equity fund with 20 to 30 positions, Vulcan Value Equity takes a long-term view and has a low turn-over of 15 per cent. Vulcan invests only in US equities and, interestingly, the 40-strong team are not permitted to invest personally in any public equities aside from Vulcan funds, which Walker says sends “a strong message on how aligned the whole firm is”.
A recent addition to the suite is the Aurora Investment trust, which Walker dubs “a UK Vulcan”. It is now run by by Phoenix Asset Management. Walker holds a 0.50 per cent position within the Global Equities fund.
The Strategic fund is markedly different today from four years ago, when Walker says it did not have a noticeable tilt towards value.
“Today we are seeing value across every market: in the UK, the US, Japan and even emerging markets,” she says. “There are opportunities in stocks that investors are discounting. Nobody is willing to put their neck on the line. This is the consequence of the monetary policy committee experiment coming to an end; the uncertainty means people are flocking to growth stocks.”