Funds and trusts four professionals are buying and selling: Q1 2021

Our quarterly series asks four multi-managers to detail recent fund and investment trust trading activity.

With the roll-out of the Covid-19 vaccine and the last-minute Brexit deal, there are glimmers of hope on the horizon. Every quarter, our multi-manager panel participants reveal their current bull and bear points. They discuss the new funds and trusts they have purchased, those they have increased their holdings in and the ones they have trimmed or sold. At the start of 2021, the four professional investors are focusing on UK and European funds.

• Income prospects for 2021: fund and trust tips
• Investment trust bargains at the start of 2021

Peter Hewitt, fund manager of BMO Managed Portfolio Trust

Reason to be bullish: the fact that a deal on Brexit was at long last agreed removes an uncertainty that had burdened the UK equity market since the Brexit referendum in June 2016. Even though the deal itself is basic and does not cover financial services at all, the key point is that investors now have certainty and can evaluate UK companies accordingly.

Reason to be bearish: there is uncertainty as to the duration of the strict lockdowns that have been put in place in many countries including the UK. Already, growth for the first quarter has been affected negatively. However, investors, are focused on how the roll-out of vaccinations are looking towards the second half of 2021 and an opening up of economies. If lockdowns either don’t work or need to be maintained for longer, then the effect on financial markets could be adverse.

Bought: Hewitt recently purchased Artemis Alpha Trust (LSE:ATS). Whenmanager Kartik Kumar took over in 2018, he set about reducing the number of holdings, cutting back exposure to private companies and selling out of the significant oil and fund management holdings, none of which had been very successful. “Employing a rigorous ‘value’ based approach he has focused the portfolio on a more concentrated list of holdings and performance has turned around strongly,” says Hewitt. As the UK economy opens up later this year, he thinks the trust is well placed to continue its good performance.

Increased: the holding in Fidelity Special Values (LSE:FSV)was increased. The trust is managed by Alex Wright, who has a good long-term performance record. As the name suggests the manager employs a disciplined value approach, which entails taking a contrarian view and often investing in out-of-favour companies and sectors. “With the announcement of a vaccine in November, there is an expectation that the economy will open up and begin a process of returning to normal from the second half of this year,” says Hewitt. He argues that the trust has taken positions in a number of holdings that were adversely affected by the pandemic but should recover strongly as economic growth in the UK picks up.

Sold: the holding in Utilico Emerging Markets (LSE:UEM)investment trust was sold. “The main reason for the disposal has been persistent underperformance relative to other trusts within the global emerging markets sector,” he says. He argues that the coming year is likely to be one of economic recovery and that a portfolio of quasi-utilities is unlikely to benefit from stronger growth.

Utilico Emerging Markets is a member of interactive’s Super 60 list. We believe the trust is appealing to both income and growth-focused investors, while providing diversification benefits and downside protection. Find out why our analyst Teodor Dilov believes the trust will return to form in 2021.

• Five trusts to play the key themes of 2021
• A fund manager’s view of the world right now

Vincent Ropers, co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income

Reason to be bullish: governments are better prepared now than a year ago and vaccines are being rolled out quickly. Provided they remain effective against this new variant, the prospect of a much-improved economic outlook for the second half of the year remains intact.

Reason to be bearish: the near-term outlook remains highly dependent on how effective societies are at managing the Covid-19 pandemic. We start the year with a highly contagious new strain of the virus that risks seeing the resurgence of lockdown measures as strict as the ones put in place at the start of the crisis. This will put the recovery on hold once again, and necessitate continued fiscal and monetary support.

Bought: Ropers’ most recent addition to the portfolio is the Lightman European Fund, a European equity value fund he invested in just after the announcements of highly effective vaccine trials in November. “Timing a market rotation from growth to value assets is extremely hard but the roll-out of vaccines globally could be the catalyst for investors to reassess some of the cyclical value opportunities on offer,” he says. Ropers used this fund to increase his allocation to value managers globally.

Increased: in addition, he increased his allocation to other value managers he already held, such as the JO Hambro UK Equity Incomefund, which gives him exposure to undervalued UK companies across the market capitalisation scale. Ropers says: “UK equities remain among the cheapest globally and, with a dissipated Brexit risk, have got the potential to rebound strongly once the Covid-19 risks abate.”

Sold: Ropers closed his position in the Church House Tenax Absolute Return Strategies fund recently. “This fund performed well for us in its intended use (cash-plus product) and we will happily invest in it again when we next want to protect the portfolio against downside risk,” he says. For now, he is gradually increasing the risk in his portfolio while keeping exposure to diversified sources of returns.

• UK equities at a turning point: the shares the pros are backing
• Fund sales hit record high as vaccine optimism boosts confidence

John Husselbee, head of multi-asset at Liontrust

Reason to be bullish: after a difficult year – and longer if we consider the shadow of trade wars – 2021 does at least promise the end of three market-influencing factors, which could mean more clarity than has been the case for some time. The first is the transition from US president Donald Trump to Joe Biden, the second is a reduction in the impact of Covid-19, and the third is the Brexit fiasco.

Reason to be bearish: however positive the vaccine news might be, there are clearly tough economic times ahead, with the OECD urging against any return to austerity as a way of dealing with spiralling government debt.

Bought: Husselbee recently purchased BlackRock Continental European Income. “We like the long track record of manager Andreas Zoellinger and team in European equities,” he says. The fund invests across the cap spectrum with a focus on quality. Husselbee sees a good environment for dividend-focused companies this year and beyond, as distributions [return] to normality against an improving backdrop.

Increased: he increased his holding in Artemis US Smaller Companies, a member of interactive investor’s Super 60 list of investments. Husselbee added more to US smaller companies towards the end of 2020, as a result of “improving vaccine news giving greater visibility and supporting risk assets, and the expectation of an ongoing divided US government meaning any reversal of tax cuts is unlikely”.

Sold: he has sold his holding in Jupiter Absolute Returnfollowing the news that manager James Clunie is leaving Jupiter and the fund will change style and approach as it passes to the group’s multi-asset team. Husselbee and his team decided to sell their position across all portfolios.

• Stocks to play two big growth themes of 2021
• Sue Noffke’s income share ideas for 2021

David Hambidge, head of multi-asset investment at Premier Miton Investors

Reason to be bullish: the policy response from governments and central banks to the global pandemic has been unprecedented in its scale and speed, which should help economies recover quicker than would otherwise have been the case.

Reason to be bearish: in spite of the efforts of politicians and bankers, it will probably take some economies, including the UK, a couple of years (or longer) to recover to where they were prior to the pandemic.

Bought: Hambidgehas addedthe Downing European Unconstrained Income fund to a number of his portfolios following its launch in early November.The objective of the fund is to generate income with the potential for long-term capital growth by investing in equities in Europe, excluding the UK. “The manager’s aim is to construct a concentrated portfolio of high-quality, undervalued dividend-paying companies that can compound value over the longer term,” he says.

Increased: UK equities were laggards for most of last year and Hambidge took advantage of some cheap valuations to increase his position early in the fourth quarter. “Our focus was on income-producing funds with more of a bias towards out-of-favour stocks trading at attractive prices, like Schroder Income, rather than those funds that concentrate more on the quality growth side of the market,” he says. Hambidge notes this trade has served him well, with UK equities having outperformed most global markets since the announcement of the first viable Covid-19 vaccine in early November, with lowly rated stocks performing particularly well.

Reduced: “Both emerging-market debt and equities have benefited from the weaker US dollar recently,” says Hambidge. That’s why he decided to take some profits in his holding of Fidelity EMD Total Return following a very strong period for the fund over the last few months.

• Ian Cowie: the investment trust I have bought with a 6.7% yield
• Take control of your retirement planning with our award-winning, low-cost Self-Invested Personal Pension (SIPP)

The four multi-manager panellists

Peter Hewitt is a director and investment manager with the BMO global equities team, and fund manager of the BMO Managed Portfolio Trust, where he specialises in investment trusts.

John Husselbee is head of multi-asset at Liontrust. He manages a range of multi-asset funds, including growth and income portfolios.

Vincent Ropers is a portfolio manager at Wise Funds, responsible for multi-asset strategies, using value and fundamental investment styles. He is co-manager of TB Wise Multi-Asset Growth and TB Wise Multi-Asset Income.

David Hambidge is head of multi-asset investment at Premier Miton Investors. He helped set up the fund-of-funds operation in 1995 and is regarded as one of the UK’s most experienced multi-managers.