The May rebalancing has thrown up a few surprises as panellists grapple with uncertainty.
With the eurozone crisis, the region has found itself downgraded in the aggressive portfolio by panellists. The difficult short-term outlook for Britain has also seen the country shifted down in panellist’s allocations.
The major beneficiaries of this uncertainty have been Asia-Pacific and North America. Some panellists, however, suggest their moves have been more than simply a defensive play.
“We took a short-term tactical overweight in Japan through Neptune Japan opportunities,” says Whitechurch Securities head of research Ben Willis. “I know that every year somebody says it will be Japan’s year but the market is looking compelling on a relative basis.”
The Neptune fund, managed by Chris Taylor, was the second-highest new entrant into the AFI aggressive portfolio. Over the past three years to May 17, the portfolio has returned 82.42 per cent against an IMA Japan sector average return of 1.27 per cent. This has put it firmly at the top of its sector over that period.
Taylor took the view that the yen looked overvalued and hedged the portfolio into sterling to protect against the currency weakening. Over the past 12 months, however, the yen has strengthened by 13.43 per cent, biting sharply into the fund’s performance and leaving it 58th of 59 funds in its sector over one year.
Willis says although the currency hedge has not played out yet, he agrees with Taylor’s analysis and cites the hedge as a core reason behind his allocation towards the fund.
Of the funds that have been booted out of the portfolio, the ones that saw the biggest reversal of sentiment were Artemis UK special situations and M&G UK select. M&G select lost its Old Broad Street Research A rating in March after the news that fund manager Mike Felton is to remain on leave owing to ill health.
“We held the fund for Mike Felton and we feel the new manager does not quite follow the same style of management,” says Willis.
Over the past year, the IMA UK all companies sector is up by 20.88 per cent while the M&G UK select fund has risen by12.98 per cent.
Not all panellists believe that geographical allocation is the most important aspect in portfolio construction in the current environment as companies whose earnings are disconnected from the fates of any particular economy could be in a stronger position.
“We have decided to largely move away from geographical funds towards ones that operate on a thematic or sector basis,” says AFH Wealth Management head of investment research Graham Toone. “We like funds such as Sarasin EquiSar global thematic and there are some interesting opportunities in equity income. Fund managers are looking for companies that truly operate on a global basis.”