James de Bunsen is a master at finding alternative investments to diversify his portfolio, which in turbulent times like these is becoming a must have rather than a choice.
He is focusing on finding strategies uncorrelated to equity and fixed income, looking to more market-neutral assets.
His £152.8m Henderson Global Investors Multi-Manager Absolute Return fund is not very different from other funds in the multi-manager range in terms of asset allocation, he says, but will “always have less equities”.
“We are less confident on equities and fixed income but we look at more market-neutral assets.” he says. “Three years ago this fund had over 20 per cent in high yield but we sold that last year as less liquid assets like this are not good. High yield, although it is in the fixed income category, is very correlated to equities.”
In February de Bunsen added the F&C Global Equity Market Neutral fund, which is a style-based quantitative strategy. Before that he added Montlake Dunn WMA Ucits fund, a quantitative managed futures strategy that invests in liquid futures contracts across equities, currencies, bonds and commodities.
He says: “These strategies tend to do very well in sustained sell-offs but can also make money in bull markets.”
De Bunsen also boosted renewable energy holdings in December as share prices softened on concerns over power prices. Among these is Foresight Solar and the Renewables Infrastructure Group investment trust. “These trusts are generally uncorrelated to equities and we expect them to generate a solid 5 to 6 per cent yield, plus a little bit of capital growth,” he says.
He has recently added to emerging market equities through the iShares Emerging Market Equity ETF, but says “it is only a short-term trade”, and a 0.8 per cent position.
He says: “ETFs have a lot of low-quality companies in them, which are the most beaten up, but valuations are high and I am using that for a bit of repositioning.”
De Bunsen, who started out as a journalist and editor, joined Henderson in 2013 from Armstrong Investment Managers, where he helped run multi-asset strategies. Before that, at Insight Investment, he helped launch the first retail multi-asset fund in the UK, which went on to form Armstrong IM.
At Henderson, alongside Absolute Return, he also manages the Alternative Stra-tegy and Multi Manager Diversified funds.
Once a month de Bunsen and his colleagues discuss a theme and decide on the next asset allocation moves. He says since he took over the fund the focus has always been on “the alternative part of it”. Recently they have looked at gold, credit and loans.
“We’ve been adding to loans. Loans are senior in the capital structure so in the event of default you get a lot of recovery, almost 80 per cent, and it is less volatile than credit. You can get a yield of 6 per cent from loans because prices are falling.”
The fund has 30 holdings at present and de Bunsen aims to keep it “as concentrated as possible”. Performance has lagged the Target Absolute Return sector over the past year, returning a 2.4 per cent loss compared with the sector’s -0.3 per cent.
Although not favouring equities – currently 14 per cent of the fund – de Bunsen is “still” positive on Japanese stocks. “It has been a painful year for Japan to date, with many earnings downgraded, but Japan is doing better than many other markets.”
De Bunsen says there is “a lot to be worried about at the moment in markets”, but what concerns him most is “the deflation from China”.
“China is not going to fall over but will continue to slow, sending deflationary pressures to the western world. The risk is that they’ll devalue the currency further.”