Premier Asset Management director of multi-asset funds David Hambidge has boosted exposure to UK and Asian equities despite the recent turmoil in China.
Hambidge, who has managed the £686m Multi-Asset Distribution fund since 1999, says recent stockmarket falls are “long over-due” and the way he positioned his fund was “waiting for a correction”.
Hambidge and his multi-asset team have been underweight equities and bonds and overweight UK commercial property for the past two years.
He says: “When we saw the downturn of the market during the summer we took some resources out of UK commercial properties and recycled that into UK and Asian equities as well as convertibles.”
UK commercial property represented 20 per cent of the fund at the start of the year but that figure has fallen to 15.5 per cent.
Hambidge says: “We’ve always been very positive on UK equities, especially the UK income sector, as it offers a very reliable income stream, especially through smaller companies which have performed extremely well recently.”
UK equities make the largest portion of the fund at 30.9 per cent.
Hambidge has also increased the Asian equity allocation of the fund despite the China market crisis, and reassures investors the fund’s exposure to Asia is not all about the troubled powerhouse.
The fund covers the region through the Schroder Asian Income fund, which represents 2.2 per cent of holdings.
He says: “We bought into the overall Asia story, not just China. Asian companies’ dividends are relatively underpinned and that suits us extremely well.
“China is in transition and that is normally quite painful. You’d never expect that to go smoothly.”
Hambidge has also cut the fund’s Latin America exposure as he had made losses of 40 per cent in the past three years.
However, on emerging markets, which make up 3.9 per cent of the fund through the Charlemagne Emerging Market Dividend fund, Hambidge is “happy to be patient” and wait for recovery to take hold in the region.
He says: “The last six months have been tough, but that’s inevitable.
“Over the downturn in the summer we have lost less than our peers and in the second quarter of this year we had a very small positive return.”
The fund has had returns of -3.02 per cent over the last six months against the Mixed Investment 20%-60% Shares sector return of -5.80 per cent, according to FE.
However, Hambidge says the fund remains “unaffected” by short-term volatility.
The fund now yields at around 4 per cent and although the team is looking to grow that yield over time, the main objective is to maintain growth and “give back a consistent income stream”.
Hambidge says: “Some people don’t understand the concept of income. If income is your thing –and the market now is very much an income market – it is really important to understand the difference between the volatility of an income stream and volatility of the underlying capital base.
“For example, we think cash is a very volatile asset class because the income stream delivered is all over the place.”
Currently the fund uses cash as a “long strategic asset”, representing 1.8 per cent of the fund.
Hambidge will continue to focus on the income stream of the fund but admits the future of markets looks gloomy.
He says: “Although quantitative easing has been the main contributor for asset returns so far, it is going to be quite tough in the future. We are in a low interest rate environment with sluggish growth and it is going to be more difficult to make money.”
Hambidge says the key to maintaining a strong level of income is to bet on active management rather than passive as the performance of passive managers in recent months has been disappointing.
He says: “It is not going to be easy but stick with good active managers. The more the market moves into passive, the better the opportunities for active management.”