RWC’s Teahan and Lance priced out into cash

RWC fund managers John Teahan and Ian Lance are having to run elevated levels of cash across their portfolios after failing to find enough attractively priced names to reinvest in.

However the managers, who alongside Nick Purves co-manage the £307m RWC Enhanced Income fund as well as the recently launched RWC Global Enhanced Dividend fund, have identified three areas where they are still finding value.

Lance says: “All the funds we run have reasonably high cash weightings, usually between 20 and 25 per cent cash. We have not been able to find good enough valuations to reinvest in.

”We are seeing equity markets in general as too expensive. This has created a difficulty for us as whenever we have sold out of something, we have not seen a buying opportunity elsewhere.”

As a result the managers’ cash weightings have crept up in the past year. The RWC Enhanced Income fund’s cash weighting increased from 18.69 per cent to 21.22 per cent from 30 July 2013 to 30 June 2014. And the cash weighting of the £254m RWC Income Opportunities fund increased from 23.16 per cent to 25.77 per cent during this time. 

Areas in which the managers are finding valuein include healthcare, energy and telecoms.

Teahan and Lance like healthcare as changing demographics mean ageing populations and increased demand, a growing middle class in emerging markets having greater access to private healthcare and changes in way these companies control their research and development.

Lance adds: “All of a sudden we have had an increase in the rate of FDA approval of new drugs in the US where Obamacare has now happened and is understood more. We have also seen a raft of M&A activity in this sector which has helped valuations.”

Healthcare oriented stocks the managers own include Merck & Co, Pfizer and Astrazeneca.

They are also attracted to the energy sector as some of these names are paying greater attention to capital discipline, causing them to buy into Total, Royal Dutch and BP.

In addition the managers are buying up telecom names and generally see an improved picture for this sector.

Teahan says: “Telecoms have suffered in the past due to regulatory pressures and there were also structural issues. We have seen things gradually change.

“Also there were too many players in Europe. We have started to see some market consolidation, in places such as Germany for example.  So we have bought Deutsche Telekom and we are looking at other names such as AT&T and Singapore Telecom.”