Holding fast in the face of adversity

The Premier Multi-Asset Growth fund is finally seeing good results. Manager, David Hambidge, says refusing to panic sell his structured products in turbulent times was key to performance.

Premier’s Multi-Asset Growth fund has produced top decile numbers in the Balanced Managed sector this year, without hiking risk to participate in the rally.

David Hambidge, the fund manager, highlights recovering structured product holdings as key to performance, with many badly hit in last year’s turbulence.

Premier rebranded the portfolio in July 2008, changing the name from Selector Growth as Hambidge introduced structured products and other alternatives. With hindsight, he says it was poor timing as diversification benefits broke down post-Lehmans and structured holdings failed to provide protection.

“In the tough conditions, these supposedly lower-risk holdings behaved like equities, with structured product prices hit by falling markets, rising volatility and counterparty issues,” he adds.

Hambidge refused to panic sell, stressing to clients that he had none of the leverage problems of other investors.

With the market storm abating this year, many mispriced structured products have re-rated and offered considerable upside. Several European offerings were among Hambidge’s top performers and he also highlights defensive autocalls on various indices.

One Merrill Lynch FTSE 100 product is already up 13% since it was bought in January 2008 and will pay a further 9% if the index is above 4700 at the start of next year. If not, it moves forward to the following January, paying an increasing coupon for decreasing index levels.

“If the market kicks on, we get capped out on the upside but such products carry an attractive risk/reward profile considering they sit in the equity portion of the fund,” he adds. “Anyone looking at our performance this year would expect high emerging market positions, but we have not needed to increase risk because our structured holdings got so mispriced.”

In general, Hambidge has a contrarian approach on Multi-Asset Growth, taking profits from outperforming funds and channeling money into weaker and cheaper vehicles. This is driven by a 5% limit on holdings, which imposes a natural sell discipline on top-returners.

At present, Hambidge has 77% of the portfolio in equities – against about 85% when it was a more traditional balanced fund – although 18% of this is structured products and 9% convertibles.

Within UK equities, Schroder UK Alpha Plus has been a star performer, with Hambidge taking profits and adding to more cautiously positioned funds like Marlborough UK Large-Cap Growth. Multi-Asset Growth is underweight in America, as the team says valuations look expensive, and overweight Japan and Europe – with structured products held in both regions.

Although positive on corporate bonds, Hambidge has avoided huge exposure because of the credit in his structured products. His alternative weighting focuses on infrastructure and hedge funds.

Looking forward, Hambidge and team see long-term value in equities but struggle to see markets getting back to 2007 highs in the forseable future.