Framlington Managed Balanced shifts bias

The shape of the 87m Framlington Managed Balanced fund has changed dramatically over the past 12 months, according to fund manager Richard Peirson.

Previously biased towards British domestic earnings with exposure to housebuilders and high-street stocks, the portfolio has moved into industrial cyclicals and healthcare companies. Exposure to firms with overseas earnings, including aerospace, engineers and information technology stocks, has also increased.

The fund invests in equities and fixed interest securities globally. About 85% of the portfolio’s holdings are in equities and the remainder in bonds and cash, with British shares making up 54% of the fund’s assets.

In the industrials sector Peirson has increased the fund’s holding in Rolls-Royce over the past six months, saying the company is now a big cash generator. The fund also remains overweight oil stocks, despite taking profits from the sector.

Although not structured as a fund of funds, the Managed Balanced fund does invest in Gareth Powell’s Framlington Biotech fund and the Framlington Emerging Markets fund, managed by William Calvert. The Emerging Markets fund was the second-largest holding in the portfolio at May 31.

Peirson is bullish on the biotechnology sector: “Valuations are cheap and there is a strong pipeline of new products. We are beginning to see more profitability from smaller companies.”

A number of constraints are placed on the Managed Balanced portfolio to manage risk. There is a limit to which Peirson can take overweight positions in small and mid-cap stocks. The aim is to reduce volatility while allowing enough freedom to outperform.

Peirson explains: “While still trying to take advantage of our strengths and skills, stock selection is limited across market capitalisations.”

“We have a reasonably sanguine outlook on the equity markets generally. We expect high single-digit returns, but we have had most of what I was expecting this year in the first six months, so could see more modest growth in the next half. I can’t see much scope for lower bond yields,” he adds.

Peirson expects economic growth rates of about 3% in America and 2-2.5% in Britain. He concludes: “We are still seeing plenty of interesting special situations.”