Three top multi-managers tell Joanna Faith how they navigated their portfolios through last year's ongoing uncertainty.
Elliot Farley, co-manager, T. Bailey Growth fund
"The introduction in 2012 of a strategic allocation to global investment themes in our flagship global fund of funds, the T. Bailey Growth fund, which is up 14.18% (in the year to 30 November), has proved an effective way of adding value for our investors.
"Globalisation looks likely to continue, with stronger links between economic fortunes in different regions and an increased correlation in the performance of equity markets around the world.
"In light of this, we made the decision to reduce several of our regional positions and introduce a strategic allocation of 20% to investment themes that are being played out globally rather than in a single country or region.
"The Pictet Timber fund invests in the equities of timber and lumber companies and has performed strongly, in part because of signs of recovery in the US housing market.
"A more recent addition is the Polar Capital Financial Opportunities fund, investing in well-financed US and Asian banks.
"Terry Smith’s Fundsmith Equity fund is a core holding in this global section of our fund and has also delivered very respectable performance. It is a concentrated portfolio – currently 26 stocks – of high-quality global companies. Unilever and drinks giant Dr Pepper Snapple are among the top ten holdings and for us the position is in part a play on increasing spending power among emerging market consumers.
"As well as allowing us to add alpha by playing global themes, holdings such as Fundsmith increase our exposure to faster-growing economies in Asia Pacific and the emerging markets but do so through Western-listed companies, which helps to manage volatility and risk."
Eugene Philalithis, manager, Fidelity Multi Asset Income fund
"Last year was very strong year for risk assets broadly. In particular, credit markets delivered equity-like returns with bond-like volatility. Central bank policies kept yields low, and the demand for income was a strong driver of investment flows into all categories of credit asset classes.
"In such a liquidity-driven environment, being invested was more important than where you invested. However, in trying to add value for our clients, we have pushed our research into non-traditional credit investments, where dislocations in pricing are gradually normalising offering the opportunity for high excess returns.
"One such area is corporate loans and structured credit – two broad, diverse areas of the credit markets which have suffered heavily in the aftermath of 2008, and in combination offer high potential returns. Our investment in the Carador Income fund is a case in point. The fund focuses on structured investments in US corporate loans.
"Because of the negative investor perception, it is possible to buy these investments at a discount to their face value, offering the opportunity for strong capital gains on top of a high level of income.
"We feel that, this year, parts of the credit market will still offer attractive opportunities for investors, but it will be more important to buy the right assets than to simply buy the market. The Fidelity fund is up 11.97% over one year (to 12 December 2012).
Peter Botham, chief investment officer, Brown Shipley
"Equities and lower-rated investment grade corporate bonds generally formed the core of our clients’ bespoke portfolios last year, while for the majority we have advocated relatively low exposure to gilts, and that has proved a successful approach.
"The idea you should steer clear of assets that are perceived to carry more risk simply because we are in difficult economic times has proved misleading. Investors who have moved into equities and corporate bonds will generally have made money in real terms, while those who have stayed in gilts and cash will have seen a negative real return.
"We also saw opportunities in high yield bonds and in small and mid-cap companies, which were oversold by risk-averse investors in the wake of last summer’s market falls and have in many cases demonstrated the flexibility and manoeuvrability to outperform the giants of the FTSE 100 this year.
"This strong performance by smaller companies was also reflected in healthy returns from the AIM portfolio we offer for inheritance tax planning purposes. The Brown Shipley AIM Portfolio Service (BSCO Equi-weighted Index) achieved a capital return of 22.24% before charges over the year to 30 November 2012.
"We took money out of Europe last year and advocated a return in the middle of this year, which we believe was a good decision, although perhaps a higher weighting would have been advantageous, because some of the strongest performance we have seen in the second half of this year has been from European equity funds.
"On balance though, the big call of 2012 was, in very general terms, about increasing clients’ exposure to ‘riskier’ assets such as equities and corporate bonds. We did exactly that and as we look back on the year, that decision appears to have paid off."
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