View more on these topics

Asset allocation: US snub proves no barrier to Premier outperformance

The Premier Multi-Asset Monthly Income fund is underweight US equities and missed this year’s long duration trade but it has trebled in size this year.

The Premier Multi-Asset Monthly Income fund trebled in size during 2014 despite being underweight US equities and missing this year’s long duration sovereign bond trade. 

The rapidly growing £220m fund is the second-largest of the firm’s multi-asset range behind the £465.4m Distribution fund. At the beginning of the year it held just £73m.

Hambidge runs the fund alongside Ian Rees, Simon Evan-Cook and David Thornton.

The team has outpaced the IMA Mixed Investment 20%-60% Shares sector by almost 2 per cent year to date, posting a 7 per cent gain.

“Not having duration in the portfolio was the one thing we got wrong this year,” Hambidge says.

“But we’re not going to reverse that now and go long duration at this stage of the cycle.”

It could be argued the fund got one other call wrong as well – it remains underweight US equities, which was the strongest performing asset class of the past year.

However, Hambidge remains unbowed on snubbing the world’s largest equity market.

“We don’t like the valuation of the US market pure and simple,” he says. “We see ourselves as value investors – we look for bargains and we don’t think the US is a bargain in any shape or form.”

The team is not tempted to get into the US now and intends to “stay true” to its investment philosophy, he adds.

“You’d think with our outperformance we should have US equities and long duration, but we have none of those things.”

One of the themes the team got “spectacularly right” was the move into UK commercial property about 18 months ago. That position has been ratcheted up over time and now accounts for almost a quarter of the fund, he says.

Property remained unloved by many for a long time while all other assets seemed to be headed upward, he says. This “anomaly” has since started to rectify itself after some hesitation from investors, he says, with the property sector offering significant gains.

“There seemed to be a case of once bitten, twice shy for many people,” Hambidge explains. “An awful lot of people had awful experiences of buying too late and dealing with one of the worst property pull backs in living memory.”

brownshipley

Doubling down on Japan when the market took a sharp drop earlier this year has also paid off.

“We added to Japan and emerging markets at the beginning of the year when there was blood on the streets,” he says.

The fund also clipped some of its UK small cap exposure at the end of the year, avoiding some of the asset class’s volatility throughout the year.

Like all Premier funds, no commodity funds have been held during the year, and even the massive declines are not enough to entice the multi-asset team to invest in the sector.

European currency has been hedged out through sterling hedged share classes, he adds.

“No huge calls have contributed to performance,” he says. “Rather, it has been the sum of many small, astute decisions.”

However, the days of incredible performance are likely to be over, he says.

“We’ve been warning investors not to expect anything like the returns they’ve had over the past five years in the next five.”

But with cash rates still so low, many investors will be forced to have to deal with greater risk than they traditionally would have in the search for income, he says. 

“There’s nothing that’s screamingly cheap out there,” Hambidge argues.

Commercial property, especially outside the capital, is still relatively cheap. However, even London commercial space is 27 per cent cheaper than at the 2007 peak, he says.

Russian equities are the cheapest they have ever been on most metrics, but Hambidge is not keen on wading into the country on this occasion.

“You could be an absolute hero by investing in Russia,” he admits.

“But don’t expect me to invest there. Investors would not thank us for taking a punt on Russia.”

The risk is too great to justify for an income-led fund, he says.

The eurozone, meanwhile, is relatively cheap and the fund added slightly to its position at the end of the third quarter.

Poor economic data and the pall of Russia has weighed on the continent’s stocks, but he expects an uplift in the next year or two.

A relatively unknown fund that has provided a boost to returns is the Prusik Asian Equity Income fund. With less than £500m in assets, it has already soft closed.

The Premier fund has been in the Prusik fund since launch and it has grown its dividend and capital extraordinarily while keeping a lid on volatility, Hambidge says.

“It’s a classic example of the capacity of funds,” he explains.

“We’re very much of the camp that smaller portfolios are easier to manage than larger funds. We pay more for that fund than anything else. Its active share is very, very high and it is nimble.”

The Premier team does things its own way, Hambidge says.

“People raise their eyebrows when I say this, but we’ve been underweight equities for the best part of five years with this fund. And the outperformance has come from the opportunities away from equities, that were thrown up by the financial crisis, in illiquid bond land.”

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment