Kames looks to sidestep Brexit uncertainties and equity ‘extremes’

Kames’ Vincent McEntegart may have cut UK assets from his fund because of Brexit uncertainties, but the outlook is not enough to make him bearish on UK stocks.

McEntegart, who has been managing the Kames Diversified Monthly Income fund since launch in 2014, has trimmed UK exposure while preferring the outlook on credit and real estate.

But at the same time, he does not think the UK market will struggle too much during Brexit.

McEntegart says: “We have fewer UK assets although we are not bearish. We have a bit less than we would have if not for the uncertainties of Brexit.

“In the meantime we have a weaker currency so at the moment we are in a temporary sweetspot.”

The way forward for the fund manager is to proceed with caution.

He says the £300m fund has a preference towards credit and real estate markets which performed strongly at the beginning of the year despite a more recent appreciation.

Equities make around 26 per cent of the fund but the manager has trimmed that exposure and upped the credit side of the portfolio, which includes corporate and bank credit, investment grade and high yield.

McEntegart says: “Three years ago we had 40 per cent in equities, but we have reduced it. We also have around 32 per cent in credit.

“Bonds are very different to equities and that makes them a great
diversifier. We don’t want to have the extreme ups and downs of equities.”

McEntegart’s fund has no geographical preference, but the fund manager says he avoids Asia “for the nature of their credit markets” for corporates and uses emerging market debt to access Asia instead.

He says: “You get less yield in credit markets than twelve months ago and that makes them expensive but we think we can pick our way through.”

In February the Kames fund reached its three-year anniversary.

To date, it has outperformed the IA Mixed Investments 20-60 per cent Shares sector returning 28.8 per cent over the three years, while the benchmark saw returns of 20 per cent, according to FE data.

McEntegart says: “When I joined Kames in 2013 the fund didn’t exist but the idea to have it was there and the firm was looking at how to build it.”

The fund invests in a mix of equities, bonds and real estate and has 219 holdings in total.

McEntegart says: “This is a global multi-asset fund and that’s very helpful for our objectives. Our big macro view is that when we look at the world we see a different environment after the financial crisis. There is still a lot of debt and that limits the ability of economies to grow.”

The fund has been picking equities mostly by looking for companies which could keep growing their dividends over time.

For this reason McEntegart does not own Apple, but prefers “steady” firms with a more stable movement in their share price.

The fund also has a 19.5 per cent invested in listed global commercial property names to keep healthier liquidity levels.

McEntegart owns 4 per cent in real estate investment trusts, with a preference for Singapore.

He says: “Singapore is a small but significant economy. It makes a huge part of global trade because of its proximity to China, but it’s not China.

“Inevitably this is going to be an influence to the success of its economy.”

While McEntegart is not too worried about US president Donald Trump for the future of the stocks and bonds he owns, he is aware markets do not always carry on bringing strong returns over the short term.

He says: “As investors, when you have short-term strong returns you expect something to go wrong. We are not bearish but just proceeding with caution. We still think bonds and real estate are good investments.

“Market levels are all quite high and that is a concern but not so much we will sell everything and just stay in cash.”