So, the November rebalancing is upon us. Given the recent rollercoaster ride that they have at times enjoyed and at others endured in global stockmarkets, significant changes to the aggressive portfolios might well have been expected.
Not so, says Beckett Financial Services portfolio manager and adviser fund index panelist Sam Sibley. “We have a long time horizon so we can afford to invest for the long term,” she says.
This has meant that despite the sharp rally across global stock indices since March, panellists have not felt pressured into making drastic changes, even if predictions of short-term reversals prove correct.
Instead, the focus has been on reorganising the aggressive portfolios to include managers that have made themselves prominent in difficult market conditions.
“We exchanged our exposure to the JP Morgan emerging markets fund for Ignis Hexam global emerging markets,” says Sibley. “I put that in because I like Bryan Collings and we get very good information on the stocks and on the team’s approach. They have been moving to a more cautious stance but still put money where they have conviction on certain stocks.”
Over the past three years, Collings’ fund has returned 55.05 per cent against an Investment Management Association global emerging markets sector average return of 45.21 per cent.
While the manager has been switched, however, Sibley’s overall emerging markets weighting in the portfolio has remained steady at 10 per cent. In contrast, Chelsea Financial Services managing director Darius McDermott has reduced his exposure to riskier markets.
He says: “We have taken out the Allianz Bric fund because it had done so well and we thought some of those markets were overheating. We have taken down our emerging markets weighting from 35 per cent to 25 per cent so it is still pretty punchy. I would say we had a very high weighting and it is now just high.”
The problem faced by panellists was that while the AFI aggressive index has climbed by 39.55 per cent since the beginning of March, the short-term outlook for markets remains unclear. As a consequence, many were disinclined from making any big, high-conviction bets in the portfolios and instead erred on the side of caution.
McDermott says: “We have also added in some absolute return funds, which we would not usually do. We have added the Gartmore European absolute return fund and a punchier Argonaut fund. We wanted to take a little bit of the risk off the table in the portfolio.”
Although an unusual move for an aggressive portfolio with the direction of markets unclear, a product offering absolute returns, irrespective of whether the market is rising or falling, is an attractive proposition.
Proof of this can be seen as the Gartmore European absolute return fund, which is managed by Roger Guy, has raised over £240m since launch in January.
Both McDermott and Sibley say the market is moving into a different phase of the cycle as the factors that have been driving the recent rally start falling away.
McDermott says: “The market has been driven by cyclicals in what could be called the dash to trash. Going into next year, it is likely to be slightly broader, that is, if it is going to go up.”
In any event, there can be a certain reassurance in the fact that an uncertain outlook has not prompted market panic on the scale of last year’s sell-off. Judging by the responses of AFI panellists to the latest rebalancing, it seems that the short-term position is to remain cautious but responsive.