Miton multi-asset fund manager David Jane says despite wariness about the future direction of markets, he’s not afraid to increase equities in his portfolios as well as buying into unloved areas in the market.
Jane says: “The huge amount of debt in China gets everyone scared. At the same time, we think they can reinvent their monetary policy. Our approach is the classic technique. If we can’t answer questions about China, we just avoid what is mostly exposed to it.”
The £319.5m Cautious Multi Asset fund, which Jane manages with Anthony Rayner, was previously known as Special Situation Portfolio but in March last year the team changed its name but not its strategy.
Since he took over the fund with Rayner in June 2014, when the duo joined Miton Group, the fund has returned 9.8 per cent against the 5 per cent of the IA Mixed Investments 20%-60% sector, according to FE.
Jane says: “The market at the moment is trickier than it is normally is and we are looking at the world with two lenses. One lens sees the very low inflation and interest rates growth as a trend that has been lasting for a long time.
“The second one is the new monetary regime, which is central banks trying anything to get growth back on track.”
With this in mind, Jane says he focuses on “simple ways” to build a portfolio.
On the fixed income side, Jane says the fund has always been “very internationally positioned”, in fixed income, but now is very biased towards the UK, with an allocation to corporate and government bonds of 26.3 per cent and 6.6 per cent respectively.
The fund manager says: “Compared to the UK, there are very negative yields in bonds in Europe but at the same time we sit in a place which is quite dull.
“UK corporate bonds give 3.5 per cent yield and we also buy dull investment grade, where rates are still very low and you’ve got potential of capital gains.”
Jane also bought into “unloved” bond areas such as Mexico and Brazil government bonds. He says: “With the period of dollar strength over, but also with a rising oil price it feels like the worst is over now for emerging markets and valuations are at relative low levels.
“Being directly invested, we can be selective on companies. We bought Brazil excluding resources, where the consumer sector looks in a good shape and took the same approach for Mexico and Asia.”
Looking to alternative holdings, Jane “significantly” reduced exposure to UK property at the end of 2015 and into the start of this year, currently making 3.2 per cent of the fund.
Jane says he is accessing the asset class via Reits, following moves by open-ended funds to switch their pricing structures in response to outflows.
Reits are appealing due to their liquidity and absence of pricing basis risk, Jane says, which offsets their exposure to movements in equity prices.
Jane also attributes Brexit worries have hit the asset class, and led to the recent underperformance of Reits, says Jane, but he argues fears are overblown regardless if whether voters choose to remain in the EU or not.
Despite the UK being “under the cosh” due to Brexit, Jane is invested in some unfavoured companies in the equity portion of the fund.
Jane says: “There are plenty of British companies which have been very good despite being out of favour because of Brexit.
“We introduced the position in UK industrials with the company Aggreko, for example, which produces containers for building sites and has great return on capital and also we bought into the resources space.”
Currently the portion of equity in the portfolio is a high 48.4 per cent, with the UK being the largest part of it at 21.5 per cent. The position has been boosted since April when Jane sold all his Japanese equities, which stood at 3.3 per cent.
Jane says, however, the fund would typically have less equity exposure than now but he is confident he can navigate any risks accompanying that decision.
With financial markets at the moment are in “a bit of a limbo”, Jane says he’ll wait for the summer to get more clarity.
“In summer we’ll have a rate rise in the US, we’ll know better what is going on in China, we’ll have another round on the Greek decision on bailout and the US election. These will give you all the answers you need.”