Hargreaves Lansdown’s David Smith invests in the top fund managers when they are underperforming and holds on to them.
The senior fund manager of the £1bn Multi-Manager Balanced Managed fund trims holdings that have increased in value to free up capital and keeps the fund invested in the best managers only.
Smith, who invests in fund managers he has known since he was a journalist nine years ago, before he joined Hargreaves, tends to hold funds for a long time, using strategic bond and total return funds for protection against market risks.
Smith says: “We don’t tend to make big dramatic moves in the fund. We tend to find people that are very good managers, stick with them and just tweak exposures.”
One example of this strategy is the Stewart Investors Asia Pacific Leaders fund, which makes up 5 per cent of the fund and ranks 7th in the top 10 holdings. Smith says: “Stewart Investors Asia Pacific is a wonderful fund with a fantastic pedigree and great team. It had a tough time recently so we bought more of that.”
The largest holding in the fund is Findley Park American, a fund with a long track record that makes up 7.6 per cent of the multi-manager fund. But Smith didn’t pick the fund as a bet on the US equity market. Indeed, Smith’s fund is underweight US equities, but Findley Park American passes all the tests to be the top holding.
Smith says: “We are quite heavily underweight the US market; we only have an 8 per cent exposure in the fund. We think the US remains pretty overvalued unless you are happy to pay 29 times earnings for US equities. It is also very hard to find outperforming managers in the US so you have an overpriced market where it is very hard to find good managers. Findley Park though have an outstanding record.”
There are 25 funds in the Multi-Manager Balanced Managed fund. It has the largest number of holdings among the multi-manager funds Smith manages at Hargreaves.
The fund has a strong bias to the UK with nearly 46 per cent exposure and specifically to UK small caps such as the Old Mutual Global Investors UK Smaller Caps Focused fund, which Smith bought at launch and believes is overlooked by many. It makes up 2.19 per cent of the portfolio.
While the UK is mostly covered by holdings such as the Woodford Equity Income, Majedie UK Equity and Axa Framlington UK Select Opportunities funds, Smith has also been a fan of the Japanese market when
equities in the region were very much out of favour. Smith says: “We have nearly 10 per cent in Japanese equities which a lot of people hated years ago. That market was trading at 0.85 times book value so the whole market was mispriced.”
At that time, the manager ramped up the exposure to Japan by investing in the Man GLG Japan CoreAlpha fund, which is the third largest holding in the fund at 6.8 per cent. Smith says: “We started to buy quite heavily in 2011 just before the Tsunami hit the region. After the event, equities became much cheaper so we bought some more.
“Japanese equities kept going down and we kept buying them. Then Shinzo Abe came to power and suddenly everyone changed their mind. Since then the Japanese market has doubled.”
To add some defensive funds to the mix, Smith has been holding strategic bond funds for the past year, such as the M&G Optimal and Jupiter Strategic Bond funds at just below 2 per cent, as well as inflation-linked bonds.
As of 19 April, the Hagreaves Multi-Manager Balanced Managed fund has returned 32.4 per cent over the past three years versus the 25.5 per cent of the IA Mixed Investments 40%-85% Shares sector, according to FE.