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Asset Allocation: Miton manager David Jane’s brave new world of tech stocks and erratic bankers

Western technology companies will benefit most from a low-growth world with depressed interest rates, Miton multi asset manager David Jane says.

Veteran manager Jane took the reins on the £420.8m CF Miton Special Situations Portfolio Oeic in June last year after several years of woeful performance.

The fund has more than halved in size since its £883.2m peak in mid-2013, with redemptions accelerating noticeably last year.

It has started to turn around now, slightly outperforming the IA Flexible Investment sector from Jane’s appointment till 28 January, FE Analytics data shows.

His fund incorporates top-down thematic ideas that are then enacted with the best value securities, he says. The fund does not attempt to pick stocks as Jane believes the overwhelming source of alpha comes from portfolio construction. The overall aim of the fund is to deliver RPI+3 per cent “over time” with half the volatility of stock markets, he says.

When looking at themes and investment ideas, Jane’s team has a system that analyses a combination of data, narrative and “affirmation” that his marketing advisers have dubbed “DNA”.

“The market lives in the narrative – most laypeople think the market is a fact discounting machine when really it’s an opinion discounting machine,” he says.

“The opportunities usually come from the gap between the data and the narrative.”

Jane also likes to see the market move – affirmation – to show sentiment has picked up the narrative and data he sees. In addition, he uses the market swings to judge peaks and troughs, buying with the momentum and selling as it starts to fall. 

A driving theme for the fund is the futility of Western economies’ attempts to return to 3 to 4 per cent growth over the next decade and more, which he believes is unrealistic. 

“Crudely, GDP is the number of workers times output. But the workforce is shrinking because of demographics. We would have to have huge productivity growth to reach those rates.

 “For that reason we believe interest rates, growth and inflation will stay lower for longer than anyone anticipates.”

There is only a very small position in emerging markets because of the risk he sees in them. And while demographics are better there, he believes low borrowing costs and changes in technology will see manufacturers will continue to re-shore factories to the west.

Parts of the UK are in the midst of a textile revival, owing to the cheaper and more efficient equipment that makes the nation competitive with labour-intensive rivals on the other side of the globe, Jane explains.

He holds developed robotics and sensor companies that make the most profitable parts that go in smartphones and other gadgets, which he sees as more lucrative than putting the finished product together.

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Great Japanese companies – especially outside the “hypercap” names – are available for very attractive prices, he says. With 16 per cent of the fund in the country, he says scratching beneath the surface there are plenty benefiting from the weakening yen and the rise of technology.

“Japan is the big value play at the moment,” Jane argues.

Another theme he sees developing is a complete change in the modus operandi of central bankers. Since Alan Greenspan – the chairman of the Federal Reserve who was succeeded by Ben Bernanke – monetary policymakers have tried to warn markets of impending actions. 

The Swiss National Bank’s decision to abandon its currency ceiling suddenly, causing massive fluctuations in currency values, may signal a sea change in that school of thought, he says.

Greenspan’s predecessor, Paul Volcker, used surprise and brutal interest rate moves to slash persistently high inflation in the 1970s and 80s and Jane is mulling whether the SNB move heralds a return to that school of thought or is simply an aberration.

“If that becomes the first in a trend we could be moving into a very difficult, a very different, world,” he warns. “And you can’t follow the ‘trust the Fed’ trade anymore, you’ll have to find a different way to make money.”

He is optimistic but more cautious this year, especially given the massive moves in oil and other commodity prices that will inevitable have consequences for asset markets.

With no energy or oil exposure in the fund, Jane is waiting for a rally in oil to buy into, which he expects sometime this year.

The fund was “extremely long duration” last year, helping boost performance and unexpectedly meaning bonds delivered more return than equities, which account for most of the portfolio, he says. Although that duration position is starting to be unwound.

The fund had no credit exposure last year, but he is now starting to look at potentially building a position.

Europe is likely to shine this year, he says, given the track record of markets that are injected with QE. Periphery utilities and infrastructure companies, as well as pharmaceutical names, have been Jane’s pick of Europe over the past 12 months. But now the fund is starting to sell up and buy cyclical companies and exporters instead.

Jane says a mixed asset manager has to think in terms of what an investor wants to get out of a fund.

While single-strategy funds are obsessed with benchmarks and “lost” returns from underweight stocks, multi-asset is much more focussed on the relative risk and return trade-offs.

“You can only lose money on what you hold, a missed gain is not a loss,” Jane says. 

Outsized positions “add to risk” and are likely to harm a manager’s ability to hit their objective, he adds.

“We’re paid to manage risk, that’s all we can control – really all fund managers are paid to manage risk – it’s just many don’t know they are.”

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