manager of the advance trust holds firm with 16% in cash and fixed interest after nav rises 8% over past month
James Carthew, manager of the £39m Advance Trust, is holding around 16% in cash and fixed interest while he waits for the market to begin climbing.
The UK-focused trust of investment trusts has seen a decline of 25% in NAV over the 12 months to 30 April, against a Global Fund of Funds sector weighted average fall of 22%.
Carthew attributed the trust's falling NAV to the general equity weakness of the past three years but said a recent uptick in NAV could be a signal of increasing stability in the markets.
The NAV of the portfolio has risen by 8% over one month to 30 April, while the discount on the share price relative to NAV stood at 12.7%, compared to a sector average of 10.5%.
Carthew said: 'Hopefully the growth will continue. When the markets moved sharply in the post-war rally, discounts to NAV widened and that is something that can take a while to unwind. We buy in shares from time to time to keep track of discounts to help improve them. Relative to the market, I do not think the fund has done that badly.'
The portfolio is completely ungeared, Carthew added, as the trusts in which he invests already have levels of gearing that he feels provide an adequate level of risk.
He said: 'I try to avoid highly geared trusts. Our second biggest holding, Scottish American, could in theory be 44% geared but is offset against cash so is actually only 14% geared.'
At present the portfolio holds 15.9% in cash and fixed interest, which Carthew said may seem cautious but is not excessively so in the current market.
The sale last month of the trust's holding in Legal & General Select ahead of its liquidation in May is one reason for the high level of cash in the portfolio.
Carthew said: 'I will not yet reinvest this money as I am not convinced markets are rushing upwards. I am still worried about consumer spending, especially in terms of things like house prices falling, which could undermine spending. We have had a slowdown in the City and information technology but not yet in the wider economy, such as the housing market.
'A lot of spending is coming from re-mortgaging in the UK and, especially in the US, people are building up high levels of debt. Oil prices, however, have come down, which is hopeful and should feed through to a lot of sectors.'
Carthew is seeking trusts with discount-narrowing potential in the European small-caps sector but believes the region continues to struggle with negative investor sentiment.
Germany is beginning to have a similar deflationary influence to Japan and is likely to impact on stocks across Europe, he said.
Accordingly, Carthew is underweight in the region, investing in what he feels are safer bets such as the JP Morgan Fleming European Fledgling Trust. He holds only one large-cap European trust, Invesco European.
Carthew is more positive on opportunities in Asia. 'If I take a medium-term view, some of the fallout in Asian markets because of the Sars virus has potential for investment opportunity,' he said. 'The market has been hurt by the epidemic but when the situation rectifies itself, there should be a bounce in confidence.'
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