Majority of 122 funds within active managed sector are claiming a positive total return over the past year following a six month rebound
Managers in the IMA Active Managed sector have taken advantage of the freedom to go 100% into equities by cashing in on the stock market rally over the last six months.
According to Morningstar, of the 122 funds in the sector with more than a one-year track record, 120 can claim a positive total return over the 12 months to 19 October with an average return of 32.3% and the top 10 performers generating returns higher than 46%.
The fifth ranked fund over three years in this sector is M&G Managed Growth which is under the stewardship of Graham French. The fund is an actively managed fund of funds which invests mainly in M&G’s core equity range.
It has returned 19.9% over the period, compared to the sector average of 0.9%. Over one year the fund is up 49.2%.
The fund is diversified across capitalisation tiers and international areas, although it has a higher exposure to the UK than its benchmark, the FTSE World Index Key developments over the past year included the introduction of direct equity holdings to the portfolio, a move designed to enable the manager to enhance the effect on fund performance of those companies in which he had the highest conviction.
These direct holdings are mainly selected from the portfolios of the three core funds – M&G Managed Growth, Global Growth and Recovery – and are diversified across regions and sectors.
French says: “A number of more ‘defensive’, consumer-oriented holdings such as Fosters, Starbucks and Yum! proved resilient and made positive contributions to performance.”
The fund has seen an increased weighting in large-cap global growth stocks through the M&G Global Growth fund, which invests in cash-generative companies with visible earnings.
The manager says: “In terms of core underlying funds, our significant holding in M&G Global Growth, which is focused on ‘quality’ companies across global equities, made a positive contribution, benefiting from this fund’s exposure to consumer staple and healthcare stocks.”
The eighth-ranked fund over three years is John Chatfield-Roberts’ Jupiter Merlin Growth, returning 12.35% over the period.
Chatfield-Roberts believes the long-term secular growth story of Asia and Asian-connected economies remains intact and his portfolio is positioned for this.
Another investment theme working well for the portfolio is the levels of economic stimulus being pumped into developed economies.
“This is a cyclical opportunity dependent on the feel-good factor of accommodating government policy and the positive impact of the current inventory restocking cycle,” Chatfield-Roberts says.
He adds: “Much of the easy money has already been made in equities and markets no longer appear as undervalued.
“But we would like to highlight that in the markets’ fervour to buy ‘beta’, meaning stocks highly correlated to movement in the index, it has arguably left behind the very stocks we feel are best positioned to thrive in the much more challenging environment.
The top-ranking fund in this sector over three years is the CF Ruffer Equity & General fund which has, using long-term strategic trading, returned 30.3%.
Ruffer Equity & General’s portfolio has a pyramid structure. The top holds large positions in big undervalued companies while further down are a large number of small holdings including small caps and initial positions.
Manager Alex Grispos explains: “I try to understand the companies we invest in a lot of detail, and we are always looking at the downside and long term horizon. We do not mind if we under perform – we are not relative. We try to gradually accumulate and increase capital via this approach.”
He adds: “During the summer we continued to identify new investment opportunities, hence the list of stocks we currently own is larger than usual. As the market consolidates we expect the number of positions to become larger in size and fewer.”
In 2009, Grispos benefited by buying US multinational stocks at attractive prices, “they have de-rated significantly. I think these large US multinationals are very interesting. Over the next ten years we will probably do well with them,” he says.
He believes there is limited risk owning stocks in companies such as Kraft Foods, Pfizer, Johnson & Johnson, Kruger, and Metronic.
“They are very undervalued, growing businesses which produce a lot of cash. We focus on cash generation, and I think the chances of losing money on these companies over the next five to 10 years is going to be quite small.”
L&G’s £231m MM Growth Trust fund is co-managed by Alan Thein and Tim Gardner. Launched in April 2008, it is ranked sixth over one year, returning 49.6%.
“We have not chased the market or worried about what our peers are doing by being short term and reacting to events. We had a bias with equities but have been with the right managers, which helped us,” Thein says.
He says until March 2009 the fund was invested in more equities than his peers, with investments in Neil Woodford’s Invesco Perpetual Income and Philip Gibbs’ Jupiter Financial Opportunities funds adding a lot of value.
The managers have a long-term overweight Asia and emerging markets view, which damaged performance towards the end of last year when the markets went down.
But with Asia and some of the emerging markets up between 50% and 100% this year, this overweight call has added considerably to performance.
The managers had a big position in Japan towards the end of last year as a defensive ploy, which benefitted the fund in October during the market falls.
“We have since brought this position back down – from over 10% to around 5%. We have maintained our overweight in Asia and emerging markets, probably upped it slightly,” Thein says.
The fund also had a position in gilts of 2 – 3% which added a lot of value last year.
“We have switched this into corporate bonds because our view was there was no point holding cash but we wanted a bit of competitiveness in the portfolio,” Thein says.
