Nathan Sweeney, senior investment manager at Architas, has tripled the allocation to cash in the £275m Architas MA Active Intermediate Income fund over the past month as a “tactical call”.
Sweeney says he increased cash from 2 per cent to 6 per cent in response to the relief rally in global equity markets following the strong reaction to Brexit.
“We are seeing equity markets not seen since 2007, which points to falls, although I don’t think this will happen,” Sweeney says. “The latest measure of volatility is 11.6 but the ViX tends to average at 20. However, I do think there will be a pull back in September.”
The fund, a concentrated portfolio of 30 holdings, aims to provide investors with income and capital over the long term and sits in the IA 20-60% Shares sector.
However, Sweeney claims it differs from its peers in its focus on alternative investments, which is facilitated by its large, 24-strong team of specialists. Holdings in the alternatives space comprise 12 per cent of the fund and include Amundi Funds Absolute Volatility World Equities, Capco Opportunities, John Laing Environmental Assets and catastrophe bonds. The average in the IA 20-60% Shares sector is 8 per cent, according to Lipper.
Sweeney says: “Alternatives are a sensible way to diversify in this market environment. Catastrophe bonds insure against weather events. If there are no major hits the returns are very attractive. The John Laing Environmental Assets fund offers a 6 per cent dividend and is not linked to equities or fixed income, which is important as we are in the second longest bull market in history and valuations are expensive.”
Sweeney believes the current bull market will outrun previous ones. He says: “The last bull market was 12 years. We are teeing up for that as central banks are creating that environment and forcing investors into equities.”
Sweeney says he has transitioned the portfolio from “pro growth to slow growth”, de-risking and focusing on income, defensives and specialist plays. The two largest income funds in the portfolio by weighting are the Fidelity MoneyBuilder Dividend fund and the Woodford Equity Income fund, both 6 per cent and top three positions.
Sweeney rates Fidelity MoneyBuilder for its “diversified spread” but thinks Woodford Equity Income is “too concentrated”.
“Healthcare and tobacco account for 50 per cent of the fund. If anything detrimental happens to those sectors it will impact its performance. We favoured Woodford Equity Income coming into the year but reduced it from 10 per cent to 6 per cent and bought Fidelity MoneyBuilder to diversify. It was a good decision given the Fidelity fund has performed well this year, up 9 per cent,” he says.
Recently panicked investors have rushed to exit commercial property in the fallout from Brexit only to be met with gated funds. But commercial property has been a concern for Sweeney since the start of the year, prompting him to reduce the fund’s exposure from 10 per cent to 1 per cent in the lead up to the referendum.
“For the past three years commercial property has performed very well. Overseas buyers have been the driver, with 50 per cent of investments from overseas. But many buyers have been affected by the falling oil price and the Government has clamped down on overseas money coming into the country.”
Sweeney has been adding to areas such as primary healthcare, through the MedicX fund, and the Ground Rents Income fund, which invests in long-dated UK ground rents and pays 3 per cent a year, “almost like a bond”. Both are 2 per cent positions.
Year to date the fund has returned 10.9 per cent versus the 8.6 per cent sector average, according to FE, and is currently yielding 2.7 per cent.