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Asset Allocation: Hargreaves Lansdown betting on Europe

Multi-manager Lee Gardhouse admits Europe has plenty of issues but some great companies too

For Hargreaves Lansdown multi-manager Lee Gardhouse the science of asset allocation is ultimately all about manager appropriation.

For his part, when it comes to manager selection, he typically surveys two distinct categories: the pure stockpickers and those that invest with the macroeconomic backdrop in mind. For the latter category he says that these managers “look at the cyclical nature of markets”.

“My feeling is that over the long term, there is no one-way to manage money – our job is to identify what managers are good at,” he says.

Gardhouse is already the lead manager on four of the Bristol-based group’s suite including the £2.4bn HL Multi-Manager Income and Growth Trust. But his range is expanding. 

The UK’s largest fund supermarket has been aggressively growing its own fund-of-funds business. December witnessed the launch of the HL Multi-Manager UK Growth fund while late February saw its most recent portfolio, the HL Multi-Manager European fund, go live. April is expected to usher in an emerging markets vehicle.

Arguably launching a European fund is somewhat of a no-brainer right now as the region, alongside Japan, is presently favoured by a plethora of multi-managers.

The European Central Bank’s decision to launch a full-scale €1 trillion plus quantitative easing plan in March, while universally welcomed, was no act of prestidigitation. The Bank had little choice if it wanted to stimulate growth across the beleaguered region and stave off a prolonged period of deflation.

Investors are now hoping the market will spring into gear and echo the gains the US and UK enjoyed on the back of loose monetary policy.

Notably the HL Multi-Manager European fund raised £91m during its offer period – representing the biggest-ever European launch on the broker’s Vantage platform.

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But Gardhouse says that he has been backing the beleaguered bloc for some time and that Hargreaves Lansdown began tipping it as a “buy” back in 2012. However he admits there is no shortage of worries to be faced across the continent.

“There are plenty of issues – Spanish unemployment, Greece, the European Union, investors need to be coming at it with a long-term, five to 10 year, view,” he says. “But we think there are some great companies in Europe and valuations look cheap.”

The European portfolio is a concentrated offering too – at least in fund-of-funds terms, holding just seven underlying funds. The asset allocation was divided between Gardhouse’s two preferred styles of fund manager – those focusing predominantly on the prospects for individual companies; and those who place a greater emphasis on taking into account the wider economic or stockmarket environment into their decision making.

“As with all our multi-manager funds the overriding preference is for fund managers with long track records; robust and well-established investment processes; and the confidence to back their ideas with conviction.” 

The roster of pure stockpickers include the Richard Pease run Henderson European Special Situations fund, as well as Jupiter European, Threadneedle European Select and the Baring European Select portfolio.

“These are managers we have identified as capable of consistently adding value through successfully identifying great companies, which can prosper regardless of the wider economic environment,” says Gardhouse.

The more macro-economically driven portion of the fund is then made up of BlackRock European Dynamic, Henderson European Focus and TM Sanditon European, which is run by Chris Rice.

Looking at perhaps the lesser-known Sanditon fund, Gardhouse says the manager recognises the fact that different companies perform well at different stages of the economic cycle.

Gardhouse says: “He therefore aims to ascertain where we are in the economic cycle and invest in the appropriate companies and sectors to benefit from the prevailing environment. We believe his consistent performance has been driven by shrewd sector positioning and strong stockpicking.”

Despite the tight set of portfolios, Gardhouse admits he is not overly concerned about having too much money ending up in the same stock.

“We are not overly critical if a number of our managers all want to embrace one stock, we should embrace that – we do not deliberately try to avoid an overlap.

“My fundamental view in terms of asset allocation is really all about how much risk an investor is willing to take. But that is for the client to decide how much volatility they are willing to accept.”

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