The Margetts Select Strategy fund, managed by Toby Ricketts, has built up its cash weighting throughout the year in anticipation of a decline in bond markets over the next 12-18 months.
Toby Ricketts, manager of the £15.89m Margetts Select Strategy fund, is holding his highest ever weighting in cash owing to a lack of perceived investment opportunities in bonds. Normally the fund has about 20% of its portfolio held in bonds and fixed interest, but at present it has only 5%, with 20% held in cash.
Ricketts says this is because he sees a correction coming in bonds, and that over the next 12-18 months the long end of the bond market could fall by 15-20%. “The only fund we hold in fixed interest is Credit Suisse Target Return, which is a negative duration portfolio so it will do well when bonds do badly,” he says.
“We have built up the cash weighting throughout the year and it is now the highest it has ever been. We have not sold any funds from the portfolio to raise this weighting – it has all come from new inflows.”
According to Standard & Poor’s, over the 12 months to November 27, the fund is ranked first out of 45 in the IMA Balanced Managed sector (fund of funds only). This follows a return of 15.19%, compared with the sector average of 11.19%. Over three years the fund is ranked sixth out of 39 funds.
Away from cash, Ricketts says the portfolio is overweight in British equities, with the focus heavily on income-generating funds. “All this year we have taken the view that we need to be in deep-value and income funds,” he says. “Indeed, over the course of the year our weighting in these types of funds has become progressively stronger.”
For Ricketts, the way to add value in multi-manager is through correct asset allocation. He says: “We think that 70% of all our outperformance comes from making the right asset allocation calls, and just 30% is down to picking the correct underlying funds. So we spend more time on our asset allocation then we do on fund picking.”
At present, Ricketts says, asset allocation is being driven by the group’s view that global inflation is set to stay higher for longer than the market expects. This is a trend he expects to continue going into 2007, so he envisages little change to the portfolio going forward. This year turnover has been just 20%.
Other calls see the fund having a zero weighting in America, a 9% position in Asia and a 5% weighting in emerging market equities. “We do not like the US at all and Asia is a geared play on this as there is a chance for positive upside and a limited downside,” he says.