Merrills global equity and global titans portfolios see number of holdings increased
Ian Rowley and his large-cap global equity team have increased the number of stocks held in the Merrill Lynch Investment Managers £16.6m Global Equity and £101.6m Global Titans funds.
Rowley, lead manager on the fund who joined Merrills from UBS Asset Management, said the increased portfolio diversification is a function of increased event risk overshadowing global markets, most notably in the US.
It also reflects the fact that while the excessive valuations of large-cap global equities have been largely eliminated, markets are not by any means cheap.
He said: 'It is much less of a case now that large parts of the market are overvalued. Over the past couple of years we have seen a correction of severe overvaluations in telecommunications, technology and media, as well as in utilities and much-loved large cap stocks such as GE and a number of favoured industrials such as Tyco.'
Opportunities to trade have increased markedly, Rowley added, allowing him in July to buy into certain strong franchise businesses sold on by growth funds in the US that no longer saw them as growth stories. These stocks included Colgate-Palmolive, Microsoft, Wal-Mart and Procter & Gamble.
Then in September, it was in the area of financials such as BNP Paribas and Fortis that glaring value was to be found, Rowley said. The valuations on both of these groups of stocks moved sharply in the weeks following the dips, forcing Rowley and his team back to the market to take profits and seek other opportunities.
With no such trading stories currently standing out, Rowley, who heads a team of 14, is opting for a well-diversified portfolio, with around 120 holdings in Global Equity and 105 in Global Titans.
The team focuses on stock-picking, preferring discounted cashflow analysis rather than using measures such as P/E ratios, price to cashflow and price to book.
Because Rowley and his colleagues are led by fundamental bottom-up analysis, the funds avoid index tracking and both are free to hold zero weightings in the largest stocks of their benchmark MSCI World Index.
The funds hold nothing in Ford Motor and General Electric, for example, and just one stock in Germany, BMW.
His weighting in Japanese stocks is also slight, with the funds containing only a small number of highly focused, mid-cap style businesses, rather than what he calls the staple names of global equity funds.
The event risk to which Rowley refers hangs over many markets, although his holdings in UK stocks show the current defensive bias he has adopted.
In the US this event risk is manifested through legal, regulatory and industry-specific risks such as the problems facing pharmaceuticals struggling with a dwindling drug pipeline, drugs falling off patent and changes at the FDA, the regulatory drug approvals body.
Under Rowley's leadership the funds have achieved comfortable top quartile performance on an offer-to-bid basis over the three months to 4 November, according to Standard & Poor's. Over the 12 months to that date, both are second decile in the 158-strong unit trust and Oeic sector.
Rowley warns about comparisons with peer funds, however, and said intermediaries need to check they are not being offered asset allocation vehicles or opportunities-style funds.
Consider risk capacity
Via The Exchange
To continue under same brands
First phase of digital investment