During this period, sectors that were outperforming other sectors subsequently underperformed. For example, F&C says utilities outperformed basic materials by 64 per cent, then underperformed by 75 per cent.
The multi-manager team believes the huge sector moves were rooted in fears about the health of the financial system from a top-down perspective, but it says the full extent of the problems has been appreciated and policies have been set out to address the concerns.
The team feels that market will be increasingly driven by a bottom-up perspective, which will mean the market chooses between the winners and the losers within each sector, rather than focusing on which sector will perform best.
The team is adapting its portfolios to suit this shift and has reintroduced George Luckraft’s AXA Framlington equity income fund to its portfolios to increase stock specific risk. The Axa Framlington fund had been held previously by the team, but was sold in February 2008.
F&C fund manager Paul Carne says: “18 months on, our tactical positioning is designed to reduce the element of our risk budget associated with sector risk and instead increase stock specific risk. We believe that the AXA Framlington equity income fund is well-suited to the risk exposure we are seeking”.
“Last year’s decision to exit the fund was not based on any concerns over manager George Luckraft’s capabilities and was simply indicative of a belief that his funds investment style no longer mirrored our strategy. Specifically, the small and mid cap exposure within the fund, when combined with other UK positions in our portfolios during that period, resulted in over exposure to smaller and medium-sized company stocks at a time when our investment thesis was that larger companies would perform better.”
The F&C multi-manager team has also added BlackRock UK special situations and Rensburg select growth to its portfolios. It has funded this by reducing holdings in Artemis income and Threadneedle UK equity income alpha and selling the Rensburg UK equity Income from its multi-manager growth and multi-manager balanced portfolios.