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Asset allocation: Charles Stanley sticks with UK but shies from retail

Director Gerard Sweeting calls time on consumer spending with investments in public houses

Charles Stanley has shied away from retail stocks in favour of “simple” companies over the past 18 months, shielding investors from turbulence in the sector.

The Charles Stanley DFM Balanced Portfolio’s asset allocation has remained fairly constant during that period as the firm focused on its “fundpicking prowess”, says director of wealth management Gerard Sweeting.

He says: “We haven’t actually done a lot over the last couple of months because we have confidence in our fund and stock selections. The asset allocation as such is very close to that of its the benchmark, the Wealth Management Association Balanced.

“We believe we are good at picking stocks, funds and bond and so if we keep asset allocation within the same as the benchmark, we are basically using that stock and fundpicking prowess.”

With UK equities currently making up some 38 per cent of the portfolio, Sweeting says the firm’s high conviction approach of 15 stocks puts importance on each company’s performance.

“We have a conviction portfolio of around 15 UK equities and they all have to pull their weight,” he says.

He adds that as a result, it is not looking to invest solely in large cap stocks.

“We are not buying Shell and BP and Glencore to get the weight, we are buying what we think is the best.”

The current plight of the retail sector was highlighted by Charles Stanley around 18 months ago, when the firm sold out of its Sainsbury’s holding.

“A sector I find difficult is retail. We were in Sainsbury’s a year-and-a-half ago and we sold it. It is a bit like the financial crisis – you could see it coming but not how bad it would be.”

The subsequent drop in retail spending means there could be an opportunity as consumers begin to spend more but Sweeting says he will look for alternative sources of performance in the sector.

“Although I think consumer spend is increasing as a result of tax cuts and the drop in oil prices, the way I’m dealing with that is going for something simple like pubs. I think here you are getting consumer spending but not taking so much of a risk.”

Charles Stanley currently has 30 per cent of its portfolio allocated to international equities, with Sweeting overweight on Japan and predictably underweight on Europe.

“The international element has a reasonable amount in US and more in Japan than it has in Europe. There are nuances to be had within the international asset allocation.

“We have been relatively underweight in emerging markets, underweight in Europe, probably equal weight in US and keen on Japan.”

While some people have taken profits in the UK, Sweeting says there is still the potential for growth if sales increase.

He says: “We need some sales growth. Quite a lot of the improvements in US stocks have been down to share growth and cost-cutting, which boosts earnings per share without the sales growth.

“We are looking towards greater sales growth coming through in the UK and that may be happening as we have had some good economic growth coming out of the States.”

The firm’s fixed-interest exposure is provided by the Charles Stanley bond team, mainly through AA-rated corporate bonds.

“Our bond team have said they don’t like gilts but AA-rated corporate bonds are looking good,” Sweeting says.

“Our exposure to property is through two commercial property funds – Swip and Threadneedle. Property is through two. 

“We think that sector still has some way to go and the combination of those two gives us a little bit more in the provinces out of central London. They have been great performers.”



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