CSAM funds of funds pull back from US

Credit Suisse Asset Management’s funds of funds are cutting back to neutral their overweight position in US equities. The 11 funds of funds, run by Gary Potter and Robert Burdett, are making a major change to their asset allocation. Since the start of the year, the funds have been overweight in Asia, emerging markets, the US and Japan, and underweight in the UK and Europe.
Burdett says these positions helped in January and February, with Asia rising by 5%, emerging markets up by 2% and the US broadly flat. In light of a change in the views of Credit Suisse’s strategists, the funds of funds are locking in profits in Asia and the US in favour of Europe, adds Burdett. “Europe has lagged for so long, but at last economic recovery is coming through.”
His core holding for Europe is the Artemis European Growth fund, run by Philip Wolstencroft. Credit Suisse bought into the Artemis fund in August 2001, within six months of the fund’s launch, and is increasing its holding. Burdett says the Artemis fund has a defensive stance that has worked well even in a bull market year, as Wolstencroft looks to companies with earnings growth and reasonable valuations. By buying into the manager – who had not previously run a fund – so early, “we are able to get the best returns, as this is when they are creating their track record, not living off it”.
Aside from asset allocation, Burdett and his colleagues are also grappling with bond returns and whether to invest in large-caps. They are looking to “flexible funds”, which invest in sub-investment grade or currency-hedged overseas debt. Burdett says 90% of UK corporate bond funds invest in investment-grade bonds – although they have the ability to put 20% of their portfolios in sub-investment-grade or non-UK debt, very few do. As a result, he has been buying funds such as the Thames River Global Bond and High Income, Baillie Gifford Global Bond and Royal London High Income funds.
Although the team has concentrated on mid and small-cap fund managers recently, “we are careful to watch if a broader bull market develops as large-caps will outperform then”.
Two of the 11 funds of funds, Balanced Strategic Portfolio and UK Strategic Growth Portfolio, have been awarded AA ratings (up from A) by Standard & Poor’s.