Only one fund in the North American sector has produced a positive return over three years, according to statistics provided by Financial Express. Neptune US Opportunities, managed by Felix Wintle, returned 8.02% over three years to March 18.
The next best fund, Jupiter North American Income, is down 7.64% over the same time period, a whole 15.66 percentage points lower. The average return in the sector was a fall of 22.56%.
So how has Wintle managed to outperform by such a large degree? The manager rules out any currency effect, as the fund does not hedge currency.
Instead he attributes the outperformance to Neptune’s sector investment process, which he says comes into its own in these market conditions.
“There are very few long-term bullish themes in the market because of the recession,” says Wintle. “However, our sector-based research process allows us to take a top-down macro view to identify the best sectors in this environment.”
For example, Wintle says the process identified in early 2007 that financials were “in serious trouble”. As a result the fund had no exposure to banks throughout the whole of 2007 and most of 2008, which Wintle says created a lot of alpha.
“The major warning sign in 2007 was that the banks were assuming historic default rates on their loans,” says Wintle. “These default rates were practically zero because of the bull market for credit and the rising housing market. This gave the illusion that people were solvent when they weren’t. Subsequently default rates have risen and the loans could never be repaid.”
Instead Wintle says healthcare has been an important part of the portfolio, representing about 20% of the fund’s assets for the last year. Wintle says he likes healthcare because it is diversified, and of the 20% weighting, about 40% is invested in biotech companies, which he describes as defensive.
“At times over the past year, the fund has been both aggressive and defensive, but in general we were defensive for all of 2008,” he says. “We took our cash weighting up to its maximum 20% on a few occasions during last year.”
So far in 2009 the portfolio has not changed a great deal, although Wintle has increased the weighting to energy to 16.7%, because he thinks the oil price has “now probably bottomed out”. He adds: “We think the oil price will be a trading range of between $40-50 for several months.”
Neptune looks up from the US deep