Andrew Yeadon, the head of multi-manager at Schroders, is gradually buying back into property and equities as opportunities arise. The mistake now, he says, would be to buy bonds.
The £83.2m Schroder Multi-Manager Strategic Balanced portfolio has increased its allocation to property and equities over the past two months and has reduced its weighting in bonds.
Andrew Yeadon, the head of multi-manager at Schroders, says that bonds are looking expensive, while equities and property trusts have been oversold.
“Our view is that the fear factor in the market has led to gilts being overpriced,” says Yeadon. “We’ve been reducing our gilts [exposure]. They’ve just got overbought. We’ve been gradually adding back to equities and property. Everybody knows the economy is slowing and that corporates will struggle to grow their earnings this year, but with the UK stockmarket trading on about 11 times earnings, a sharp slowdown [or] mild recession is already priced into the market. Our view is markets have been oversold. If we can avoid the worst, stocks look cheap.”
Nonetheless, the portfolio still has 8% of its assets in cash. Yeadon says he is waiting for better opportunities to arise.
“We don’t want to go maximum equities yet,” he says. “Our feeling is there might be a better opportunity. We’ve still got some ammo. But if we can pick up value we will. The really risky thing right now is [to buy] bonds.
“There is a lot of bad news in the market and that has reflected itself in the overvaluation of gilts and the undervaluation of equities. [Bonds] might not be as volatile as equities, but they are not going to make any money.”
Over one year to February 18 the Schroder Multi-Manager Strategic Balanced fund was ranked 18th out of 46 funds in the Investment Management Association Balanced Managed sector. It fell 4.68%, close to the average sector drop of 4.6%, according to Morningstar. Over three years the fund was ranked sixth out of 42 funds and returned 32.82% compared with an average return of 24.72%.
At December 12 there were 19 underlying funds in the Multi-Manager Strategic Balanced portfolio. The underlying fund with the largest weighting is the UOB Kinetics Paradigm fund. Yeadon has held it since August 2005.
“The fund is run by Kinetics in the States,” says Yeadon. “They focus particularly on US equities. They have the strongest record in US equities we can find. They are very impressive. It’s not a well known fund in the UK, but it does have UK distributor status.”
In terms of 2007 performance, Yeadon says his avoidance of income funds was beneficial as was reducing his equity exposure in November by 10-12%.
But he adds: “We called property wrong. We bought back too early. We were playing property trusts and they moved to quite big discounts and we bought back a bit. Then the credit crunch came and the discounts got bigger.
“That’s the one thing I’d do differently. There was a lot of forced selling. Everything that was traded property fell off.”
Yeadon has been increasing his exposure to property trusts since January.
“Now the pressure is easing and property securities are doing well,” he says.