iimia’s Growth & Income fund benefits from a hike in exposure to closed-ended funds in a range of out-of-favour sectors, including high growth technology stocks and commercial property.
Richard Scott, the manager of the £65m iimia Growth & Income fund, has increased the fund’s exposure to high growth sectors of the market and raised its weighting in closed-ended funds. Scott says as the fund is run using a thematic approach to investing, he is able to invest in more specialist portfolios than a typical fund of funds.
Indeed, the fund holds 47 underlying funds in the portfolio, which Scott concedes is more than most fund of funds. “For many investors this fund is their only exposure to financial markets,” says Scott. “As such it is designed to be broadly diversified to provide exposure to a mix of asset classes. Our biggest holdings are in the more diversified funds and the smaller holdings are in the more specialist funds.”
Of the funds held in the portfolio, Scott holds both open and closed-ended. He says the weighting to closed-ended funds has increased to 71% from 61%.
“The discounts of several investment trusts have widened sharply during the financial volatility and this has hurt the short-term performance of the fund.” says Scott. “However, there is a flipside. Any improvement in sentiment will quickly lead to more buyers than sellers of investment trusts and the discounts will narrow quickly as a result.”
One sector the fund has increased its weighting to is high growth technology stocks. However, rather than just holding one fund in the sector, Scott holds four.
“We recently included the Biotech Growth Trust, which is managed by Orbimed in America,” he says. “The biotech area has been out of favour for some time as healthcare stocks have generally been lacklustre.
“As such the valuation of the sector compared with its earnings growth is the cheapest it has been on record. Orbimed are experts in healthcare and we started buying shares in the Biotech Growth Trust when it slipped to a 7% discount.”
Scott has also added to the fund’s commercial property exposure as discounts in that sector have also “ballooned”.
“At current levels the risk/reward ratio of holding closed-ended property funds is very attractive,” he says.
“Overall I am building up exposure to those out-of-favour areas of the market, which I think will stand the portfolio in good stead for the next 12-18 months.”