Adviser Fund Index panellists have moved away from British equities and towards emerging markets and strategic bond funds in the balanced index.
In last November’s rebalancing, panellists reduced their direct exposure to Britain while fixed interest and property gained the most. The funds picked by the highest number of panellists include First State Asia Pacific leaders, L&G dynamic bond, M&G optimal income, Invesco Perpetual corp- orate bond and M&G global basics.
“We have rejigged our approach a bit towards fund managers who are making their own asset allocation calls,” says Chartwell investment management researcher James Davies. “We have also moved towards strategic bonds over corporate bonds, for example, the Legal & General fund.”
The L&G dynamic bond fund, managed by Richard Hodges, has seen a significant period of outperformance over the past 12 months, returning 45.67 per cent since December 16, 2008.
Much of its performance was put down to Hodges’ move into interest rate swaps as a hedge against a possible decline in the value of risk assets and panellists looking for stockpickers in fixed interest have found his unconstrained mandate attractive.
“The AFI portfolios are now the closest that they have ever been to our core client portfolios,” says Davies. “Across the board, we prefer to place our conviction with managers who are making their own individual calls. If there is a bias, it is towards embedded value as we would say that the mar- ket appears to have got ahead of itself in certain areas.”
The ability to remain dynamic and responsive going into the new year appears to have been a key concern for panellists in the latest rebalancing.
“We bought in the Ignis Hexam global emerging markets fund in place of the Aberdeen fund,” Davies says. “Over the long term, I think the Hexam fund will be able to add more alpha and is more nimble than the Aberdeen emerging markets fund.”
Perhaps surprisingly, given panellists’ positive outlook for stockpickers over macro-focused managers, BlackRock UK special situations, managed by Richard Plackett, found itself booted out of the Balanced index.
The move is at odds with F&C’s multimanager team which bought into the BlackRock fund in expectation of a shift in markets which will favour active stockpickers.
“Our models have not been favouring UK equities over overseas equities but the signs are that that is starting to reverse,” says Paul Carne, a fund manager on F&C’s multi-manager team. “We recently bought back into BlackRock UK special situations. As the dust settles and people start separating the winners from the losers, it should bec- ome a better period for active managers to outperform.”
This could be suggestive of a growing belief among panellists that the equity rally in Britain since March could be tripped up going into the new year.
“Our only direct exposure to Britain is through Jeremy Smith’s Neptune UK equ- ity fund,” says Davies. “We have not ent- ered into recovery stocks recently as we are now looking more at companies with strong overseas earnings. You do not want to be exposed to the UK domestic consumption story.”
What can certainly be taken from the November rebalancing is that panellists are looking to emerging markets and bond funds to see the Balanced index through the next six months. This could suggest a combination of uncertainty surrounding the forecasts for developed markets moving into 2010 and the desire not to be left behind by a rally in developing markets.