As the financial markets grow more volatile again, Rob Burdett, the manager of the Cautious Managed fund at Thames River Capital, has become still more defensive. In today’s nervous markets even cautious funds can suffer high volatility. He says in the groups’s latest factsheet that “further poor economic and corporate news weighted on sentiment but the overriding factor was the continued uncertainty over the global financial sector”.
He says the worst-performing market over the past month was Japan, while the best-performing one was Asia Ex Japan. Burdett says credit also had a weaker month, with the IMA Sterling Corporate Bond average falling. Gilts gained as yields compressed further.
In times of volatile markets, Burdett likes to keep some things consistent. “Our style of management is still the same,” he says. “I’m part of a team of five. We have been [managing funds] together for more than ten years.”
“Performance has been very good so far. [Cautious Managed] is our largest and most popular fund.” The most important thing has always been “getting the managers right first”, Burdett says. “We look for experienced managers.”
Specifically, he looks for managers who are more focused on absolute returns than on their benchmark.
Among his fund’s top 10 holdings are two absolute return funds: Cazenove UK Absolute Target and BlackRock Absolute Alpha.
“What we are ultimately looking for is fund managers who have found a way that works best for them.” He says fund managers have to know which conditions suit them well and how to manage their portfolios even in difficult economic times. “For example, they have to know when and how to adjust risk.” Those are “the managers where the best returns come from”.
His top 10 holdings also include five bond funds. “In the cautious managed sector we tend to have a high exposure to bonds. [However], at the present we are wary of the bond market, especially of corporate bonds. We are concerned about high yield bonds and have no pure high yield bond funds in our portfolio.”
He has increased his weightings in government and investment grade bonds. And because “equity markets appeared to be oversold and markets hit new lows”, he increased exposure to equities by 10% two weeks ago.
He says that it is quite unusual for his team to take a short term view but sometimes markets are so volatile that “one needs to make more changes than usual”.
Last month he sold out of Rensburg Corporate Bond and took up the M&G Corporate Bond fund because he wanted to maintain the Cautious Managed fund’s exposure to investment grade bonds. He also sold the emerging markets exposure and bought Prusik Asia.
Burdett expects volatility to remain high and for the fund to remain defensive.
“At some time we expect to go back and add high yield funds. We might get back into smaller companies, increase UK exposure and possibly increase our exposure to commercial property.
“Our clear strategy is to be defensive but opportunistic.”