Aberdeen Standard Investments (ASI) has "sold down [the] structurally challenged companies" in the LF ASI Income Focus fund as it repositions the portfolio to be more liquid and diversified ahead of its reopening on Thursday 13 February.
The fund, formerly run by Neil Woodford, has been overhauled by new managers Thomas Moore and Charles Luke, with Woodford's strong bias towards domestically focused stocks removed with the addition of more internationally facing businesses.
ASI said the portfolio transition process was "very close to completion", with the managers "confident that the portfolio is best placed to deliver the Fund's investment objective and add value for investors".
ASI said Moore and Luke had "prioritised exposure to our highest conviction income ideas, improved the liquidity profile of the underlying holdings, increased the portfolio's sector diversification and sold down structurally challenged companies".
The portfolio will be made up of between 30 and 40 of ASI's UK equities team's best ideas, the firm added.
Removing the domestic bias
Some of the overseas-focused firms to have been drafted in include soft drinks bottling firm Coca-Cola Hellenic, travel firm TUI and emerging market asset manager Ashmore.
Meanwhile, domestic-facing companies have also been brought into the fund, including merchant bank Close Brothers, utility SSE and property firm Assura.
ASI said: "The managers will emphasise stock specific opportunities, whilst minimising the risk that one economic scenario dominates returns.
"The size of holdings in any stock is informed by conviction, downside risk assessment, liquidity, broader portfolio dynamics and additional insights gathered via our on-desk risk tools."
During the transition period, the fund underperformed its FTSE All-Share benchmark, with respective returns between 15 October and 7 February 0.8% and 5%. In January alone, the fund underperformed its benchmark by 4%.
Poor performance contributors
However, ASI claimed that underperformance was largely due to the costs of the transition. For example, it said the sale of Honeycomb Investment trust was "relatively costly to dispose of", setting performance back by around 0.6%.
"[Honeycomb] is a highly illiquid stock with a significant ongoing overhang from large shareholders perceived by the market to be likely sellers. As such, it was necessary to place the stock at a discount to the prevailing market price," ASI explained.
"However this did not reflect a distressed valuation for the asset by any means and allowed us to reinvest the proceeds in more liquid stocks in which we see greater total return potential."
Elsewhere, some of the fund's inherited positions continued to perform poorly, including Card Factory, which warned on profits during the period.
Those new holdings that contributed to underperformance were the likes of TUI and Inchcape, which saw sentiment affected due to coronavirus fears.
The fund's ACD Link Fund Solutions confirmed the costs associated with the repositioning of the fund added up to 0.29% of the value of the fund as at 27 December.
ASI added that the waiving of its, Link's and depositary Northern Trust's fees until 31 May 2020 "will offset some of [these] costs".
From 1 June, investors will pay a periodic charge of between 1% and 0.65% depending on which share class they own.
Liontrust Income falls 19 places into grey list
'Public showing interest in ESG'
Fire sale could be forthcoming
There are a variety of ways of delivering an investment proposition, writes Lawrence Cook, who takes a look at developments in the DFM and MPS markets...
Recruiting up to 6 advisers
Following difficult time
Ahead of 11 March budget