Berry Asset Management is maintaining a commitment to equities across its portfolios this year, against what it regards as a supportive
backdrop for markets with continued monetary stimulus and low interest rates.
But the company believes value may be harder to find after the run in equities, meaning it is important to select good stockpickers.
Each of the wealth manager’s five portfolios is running close to its maximum allocation to equities, according to chief investment officer Mark Robinson. He says: “This is a reflection of the still very accommodative stance surrounding markets at the moment from liquidity and low interest rate policy.
“We do not see this situation being reduced in the near future even though we are getting closer to a point where interest rates will have to shift a little. But it does not look as though that will happen this year.”
Despite being optimistic on the asset class, Robinson says equities are not without their dangers.
Risks derive from the lack of value in certain areas of the market, the ongoing crisis in emerging economies and potential disappointment from the hotly anticipated earnings growth in developed equities.
“It is not going to be as plain sailing as perhaps it was last year, with more volatility likely. But that does not mean equity markets cannot still grind higher given this very stimulative backdrop.
“There needs to be earnings delivery. This will likely be a key differentiator for markets in 2014. Valuations in certain areas have been pushed to quite high levels as low interest rates push equity tourists into markets.”
Multi-cap income focus
Good stockpickers who are able to target companies that can deliver on earnings and seek out pockets of value in the market are crucial in this environment, says Robinson.
He cites the £184.7m GVO UK Focus as an example of a fund that adopts “more of a private equity approach to investing” by targeting both value and opportunities in the market to deliver “nimble” stockpicking ideas with a multi-cap focus.
“There is a lot of expectation out there and those companies that do not meet earnings will likely be punished by investors. This is why you need really active stockpickers and not passive or index-hugging managers because it is about knowing companies very well and making sure they can deliver.
“There are some dangers within equity markets in terms of valuation too but equally there are pockets of very good value if you hunt around. This is again why you need specialist and nimble managers.”
The UK equity income sector is under the spotlight following the announcement of the departure of star manager Neil Wood-ford from Invesco Perpetual. But Robinson generally favours more nimble funds, which can go further down the market cap scale, to the traditional large cap income bias.
“Parts of the large cap space are quite saturated with money and while the situation with Woodford has allowed a certain amount of capital to be circulated, this has spilled over into a number of funds that have now begun to reach capacity or are finding it more difficult to maintain performance,” he says.
“We think there are still lots of interesting ideas in the income space but these are much further down the market cap scale.”
Straying from mega-cap income, Robinson looks to the £189m River & Mercantile UK Equity Income fund, managed by Daniel Hanbury, and Gervais Williams’ £399.8m Miton UK Multi-Cap Income fund.
Re-assessing emerging markets
Robinson believes he made the right call in the autumn to remove all exp-osure to emerging markets across the range of portfolios. Following the decision, attractive valuations could see Berry return to emerging market equities. “There is quite a lot of uncertainty around emerging markets but valuations in certain parts of the region look much more appealing than they did. So that is an area we might get more interested in as the year progresses.
“You will always get these kinds of growing pains with emerging economies; it goes with the territory. But investors should know that emerging markets are higher risk and in the long run they should offer greater reward.”
Is gold still a safe haven?
The Berry Balanced Strategy port-folio currently has 6 per cent allo-cated to gold. But Robinson says he is in the process of reviewing his outlook for the asset following concerns it may have lost some of its safe-haven attributes.
After a disappointing year for gold in 2013, the rising tensions between Ukraine and Russia coupled with volatility in emerging markets early this year have seen the asset regain some of its safe-haven reputation as the gold price spiked more than 10 per cent.
Robinson believes gold should continue to function as a “stabiliser for portfolios” amid periods of volatility. But he questions whether the gold price should have increased more during this period of volatility.
“The gold price could have moved more when we saw the Russia and Ukraine situation kick off so we are looking at this to see whether some of the safe-haven attributes of gold have disappeared.
“Of course, when interest rates start to rise and you get a real return on cash, gold may become a bit less appealing. So it is just something we are reviewing but gold is an asset you always hope you do not need to use in a major way.”
ABOUT BERRY ASSET MANAGEMENT
Berry Asset Management was originally set up in 1981 by Jamie Berry who to this day remains actively involved with both client relations and client portfolio management at the firm.
With chief executive officer Jamie MacLeod now at the helm, the firm concentrates on managing private client portfolios.
Berry is also set to take the name of its current parent company Bordier & Cie (UK), subject to FCA approval.
CIO Mark Robinson says the key to the Berry’s investment process is conviction and seeking out managers who have a focused investment discipline and who will “stick to their knitting”.
He believes breaking an investment process because of changes in market conditions is “one of the biggest flaws than can arise with fund managers”.