Insight multi-manager goes large

Insight Investment is cutting back the small-cap overweight position in its Wealth Builder fund of funds range because it believes the rally seen in them is over.

Director of fund and manager selection Patrick Armstrong says small-caps are looking expensive after their huge rally last year, and he is turning his attention to large-cap funds.

He says: “A lot of large-cap managers are seeing value in their sector that they did not see a year ago. When we talked to some of them last March, they were even saying that it was a good time to sell their funds. Now they are much more bullish.”

Globally, the portfolios are slightly overweight equities versus fixed interest. This is because of a marginal overweight in UK equities versus UK bonds. Insight sees good value in UK equities, with the yield on the FTSE All-Share at 3.5% compared with 2.1% on the MSCI World index, Armstrong says.

Armstrong and his team, who joined Insight from UBS at the end of 2003, are keeping the portfolios style-neutral at present. “That is not normal for us and we gain a lot of alpha overweighting one style or the other. But we do not see much division in value versus growth. The premiums on growth stocks versus value stocks are in line with historical averages and we like to see a divergence. We just do not see any signals.”

Armstrong’s natural bias is towards value, however, because he believes that is where inefficiencies in the market are more easily captured by fund managers. Funds and managers he favours this year include Albert Morillo’s Investec European fund, because of its leaning towards large-caps; the Schroder UK Alpha fund because it gives him sufficient small-cap exposure; and the Bernstein UK Value fund, because it has analysts with extensive industry experience and a rigorous bottom-up process.

Research by Insight has shown that funds of funds can add value net of charges. Figures from Lipper Hindsight in the year to end-November show the average fund of funds in the Balanced Managed sector returned 7.25% on an offer-to-bid basis, compared with 5.69% for the sector’s average fund. Comparative figures in the Active Managed sector were 9.91% and 7.51% respectively, and 9.43% and 8.65% respectively in the UK All Companies sector.