F&C is confident the worst of the downturn is over and has moved its funds of funds from a defensive stance to neutral. And long-only equities are favoured over absolute return funds.
A belief that the worst of the economic downturn is over has prompted F&C to move its funds of funds from a defensive stance to neutral. As a result, Dean Cheeseman, the firm’s head of retail multi-management, is reintroducing stockpicking managers to the range, including George Luckraft, Richard Plackett and Robin Geffen.
Within the F&C Multi Manager Cautious portfolio, Cheeseman has added a stake in Luckraft’s £200m Axa Framlington Equity Income unit trust. The Axa fund, which had assets of closer to £1 billion in 2007, fell out of favour with investors after its small- and mid-cap focus triggered a poor run of performance.
Cheeseman sold out of the fund shortly after joining F&C from Forsyth Partners in December, 2007. However, he expects Luckraft’s bottom-up style to “add good alpha” in current market conditions.
“We didn’t think George’s style would suit the economic environment that was likely to unfold in 2008,” explains Cheeseman. “But we said at the time that we looked forward to reintroducing the fund at a later date. George is a manager in whom we hold a high level of conviction, and when we became confident that the world was not in meltdown we began to bring the fund back in.”
Cheeseman also took a position in Geffen’s £660m Neptune Income Oeic earlier this year, by “toning down” his weighting in Artemis Income – the cautious portfolio’s main actively-managed equity holding. British stockmarket exposure in the F&C fund stood at 28% last week, down from 31% at the end of July.
Within the portfolio’s 18% overseas allocation, American equity exposure comes from SPDR Trust Series 1 – an exchange-traded fund (ETF) tracking the S&P 500. Cheeseman previously held an actively-managed fund – GLG American Growth – but took profits after it performed strongly in the first quarter of 2009.
The fund’s biggest allocation is fixed interest, and its largest individual positions at the end of July were Invesco Perpetual Corporate Bond and the iShares Euro Government Bond ETF. Cheeseman expects to complete a change to his bond fund line-up this week. “We want to be more investment grade-orientated,” he adds. “As with equities, we are moving towards neutrality.”
Multi Manager Cautious holds a further 8% of its assets in alternatives, including stakes in Jupiter Financial Opportunities and BlackRock UK Absolute Alpha. Cheeseman is generally enthusiastic on retail absolute return-type products, but warns that the sector may be expanding too quickly.
“I understand investors’ desire for a stable return profile, but long-only equities are likely to outperform absolute return strategies on a five-year investment window,” he says. “Absolute return funds are not a fad but they are potentially becoming too mainstream – there are a lot of ‘me-too’ products.”
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