A reflection of the house view

It would be easy to dismiss in-house or fettered funds of funds as the poor relations in the multi-manager community. What is clear is that they are bound to reflect the house view and fund performance of only one fund management business. But the range of funds available to the manager is pivotal to the make-up of the portfolio, and this can produce some interesting effects.

Threadneedle’s managed funds range contains six funds. Global Equity – the most adventurous – Global Equity & Bond and Equity and Bond are managed by Sarah Arkle. Laurence Mutkin manages Defensive Equity & Bond and Defensive Bond, and Chris White runs Managed Income. The range is overseen by head of managed funds Alex Lyle.

Threadneedle Managed Income sits in the IMA UK Equity & Bond Income sector, but is perhaps not a typical example of the genre. It states in its objectives that it will normally hold “the more income-orientated” funds from the Threadneedle range. But because of the funds available to White, he says the portfolio has more of a skew towards growth, or at least growth at a reasonable price, than might otherwise be the case.

“In the equity component of the fund, the UK Equity Income, UK Monthly Income and Monthly Extra Income funds have a value and income slant, but the unit trust rules say I can invest only 20% of the portfolio in each of these,” he explains. “That is not enough, so I hold the UK Growth and UK Growth & Income funds as well.

“You have to accept the fact that there will be this bias towards growth. In the longer term, it will probably mean that the fund does well. But it hasn’t helped in the last year or two, as the market has favoured more income or value-orientated styles.”

Of course, being in a mixed equity and bond sector means White is not compelled to invest as heavily in equity funds as he does – they currently make up 80% of the portfolio. But at present he does not see value in bonds. In the past two months he has sold his entire holdings in Threadneedle’s UK Corporate Bond and High Yield Bond funds and reinvested the proceeds in Sterling Bond, a gilt fund. The Sterling Bond weighting has moved up from about 2% to about 14%.

He says the yield premium corporate bonds enjoy over their government counterparts has become so narrow that the