Smith & Williamson’s (S&W) MM Endurance Balanced portfolio remains top quartile over three and five years, despite a hedge fund-induced tough end to 2008.
Nick Marshall and James Burns, the fund’s co-managers, run the fund of funds with a British equity skew and tend to have some presence in all the major markets. They hold between 15 and 30 funds, with 29 at present to ensure sufficient diversity in difficult markets.
Marshall and Burns had a decent hedge fund weighting as a defensive measure last year, investing via closed-ended vehicles: BH Macro, BH Global, Bluecrest AllBlue and Thames River Hedge. Although these grew their net asset values (NAV) over 2008, their discounts blew out late in the year amid forced selling, hitting Endurance’s performance. These discounts narrowed again this year as sentiment improved, boosting the fund’s short-term numbers.
Marshall says they have maintained a good position in fixed interest on the defensive side, holding Fidelity Sterling Bond, Invesco Perpetual Corporate Bond and M&G Optimal Income.
He also highlights the less well-known CG Real Return, which is index-linked and will benefit from returning inflation and has profited from betting against sterling.
On the equity front, the managers have banked profits from higher-beta funds that have outperformed in the post-March recovery.
“Although we feel the rally has further to go on liquidity grounds, we would be disappointed not to have a degree of liquidity in the portfolio should there be an economic setback,” adds Marshall.
In May, they trimmed weightings in Schroder UK Alpha and BlackRock UK Dynamic, recycling money into an existing position in Artemis Income plus the bond holdings.
“Funds like Artemis Income and Invesco Perpetual Income have lagged in recent months due to their defensive stance but this type of stock will assume market leadership in due course,” he adds.
In the 33% British equity weighting, Marshall and Burns have also added Cazenove UK Absolute Target and M&G Recovery.
They also hold Axa Framlington UK Select Opportunities for Nigel Thomas’ mid-cap growth exposure and F&C UK Opportunities, managed by Phil Doel.
Endurance Balanced is overweight Asia and Emerging Markets with about 12%, although key holdings from Aberdeen and First State are defensive in nature. Marshall is underweight in Europe and Japan.
“We sold out of New Star European Growth after all the issues at the group and from an asset allocation view, consider the Far East a more compelling growth prospect,” he adds.
In America, the managers say a V-shaped recovery is unlikely. Their 8% holding covers growth and value, with about half in Tom Digenan’s UBS US Equity and smaller positions in Martin Currie North America and Melchior North American Opportunities.
Looking ahead, Marshall says the rally was stronger than expected but says economic fundamentals not getting worse does not mean they are improving. “We’re not in the ultra bear camp believing a recovery will take two or three years but we’re not advocating being fully invested yet,” he adds.