Funds and trusts four pros are buying and selling: Q3 2024

The UK economy has grown more than expected and US inflation is lower than previously forecast. As always, there are opportunities to be found and the four professional investors that feature in this quarterly series have a range of opinions on how to position themselves in the current economic environment.

Every quarter, our multi-manager panel participants reveal their current bull and bear points. They discuss the new funds and investment trusts they have purchased, those they have increased their holdings in and the ones they have trimmed or sold.

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Peter Hewitt, manager of CT Global Managed Portfolio Trust

Reason to be bullish: with inflation at 2% and its core element beginning to trend lower, the path has cleared for the Bank of England to cut interest rates during the third quarter. That is a positive for UK financial markets, and in particular, the equity market.

Reason to be bearish: there is a risk that central banks could delay cutting interest rates for too long, which could push economies back into recession. This risk is especially relevant for the US, where inflation is stickier and there are signs of a loss of momentum in the economy, albeit from higher levels of growth than in Europe.

Bought: Hewitt has bought JPMorgan UK Small Cap Growth & Income (LSE:JUGI). The trust is the result of a merger between JPMorgan UK Smaller Companies and JPMorgan UK Mid Cap trusts and has assets of over £400 million. The management team is spearheaded by the experienced Georgina Brittain. The trust employs a growth style of investment, with the predecessor, JPMorgan UK Smaller Companies Trust, having had a very strong long-term performance record. The merged trust will have a dividend yield equivalent to 4% at the year-end Net Asset Value (NAV) paid quarterly.

Hewitt notes: “UK medium and smaller companies have been out of favour for several years and valuations in this segment of the stock market are at historical lows. With interest rates in the UK set to fall and growth modestly picking up, this is a favourable environment for the trust to perform.”

Increased: he has increased his position in TR Property Ord (LSE:TRY). Following a severe bear market for the property sector over the past two and a half years, Hewitt argues that prospects are looking brighter with lower interest rates in both the UK and eurozone likely. “Also, there was little or no speculative property building so there is not an oversupply in the UK,” he adds.

TR Property invests mainly in listed UK and European companies and has the flexibility to alter exposures and weightings rapidly, taking advantage of very wide discounts still available in many property company share prices. The trust also has an outstanding record of dividend growth of 8% per annum over the last decade and current yields around 5%.

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Sold: he has sold Edinburgh Worldwide Ord (LSE:EWI). “The trust has persistently underperformed and there seems to be little sign of an upturn in contrast to other Baillie Gifford managed trusts with a substantial exposure to technology and high-growth companies such as Scottish Mortgage Ord (LSE:SMT) or Monks Ord (LSE:MNKS),” he says.

Edinburgh Worldwide focuses on listed companies with a market value of under $5 billion and most of its investments are in the US, Europe and the UK. In terms of the UK, Ocado Group (LSE:OCDO) and Oxford Nanopore Technologies (LSE:ONT) are held, and both have seen their share prices materially underperform over the last year. “There is also a very long list of small holdings which appear to add little to performance,” he notes.

Simon Evan-Cook, manager of the Downing Fox Funds

Reason to be bullish: economies are still generally growing, and inflation has come down, which might mean central banks can reduce rates to keep everything on track.

Reason to be bearish: it doesn’t look like we’ve solved the problem of “too much debt”, so there’s a meaningful risk that higher interest rates are crushing the economy more than we currently know, which may lead to a deeper recession.

Bought: Evan-Cook bought the AVI Global Special Situations fund on its launch in April. This is an open-ended version of the AVI Global Trust Ord (LSE:AGT), which was formerly the British Empire Trust. It is a valuation-driven fund that looks nothing like the global index, as it sticks to its task of finding special corporate situations whose value is meaningfully underestimated by the market. Evan-Cook adds: “We invested because of the high-quality management team,and because we want our portfolio filled with specialists who are ‘doing their own thing’.”

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Increased: he added to his position inVT Cape Wrath Focus. “We’ve held this for a while, but we think both the manager and the asset class (UK small-cap value) are moving into a real sweet spot,” says Evan-Cook. He thinks the fund is well positioned to generate exceptional returns from here, and in a way that deviates dramatically from a market index. “The fund is also growing in size as other investors notice it, which allows us to hold more,” he says.

Trimmed:Ranmore Global Equity was reduced. “This was, and remains, one of our largest holdings, and has done an incredible job for us over the last year, particularly as it’s a value fund in a market that hasn’t suited value,” he says. He trimmed it back, along with a few others, to raise capital to add to the AVI fund mentioned above. However, it remains one of his highest-conviction positions.

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

Reason to be bullish: growth continues to confound expectations on the upside, particularly in the US, leading to strong risk appetite and markets. Meanwhile, attractive valuations in other regions, such as the UK, Japan and emerging markets, are being noticed and positive sentiment has started rippling through into those markets too.

Reason to be bearish: in that context, investors are overlooking interest rates that have to be kept higher for longer by central banks as inflation, particularly in services, remains sticky. There are early signs that consumers have now spent their savings accumulated during the Covid period and this could lead to a slowdown in consumption. The resulting weaker growth, coupled with stubborn inflation and political tensions post-elections across key parts of the world, could easily dampen investors’ enthusiasm.

Bought: like in the previous quarter, Ropers did not add any new position to his funds in the past three months, although his team is in the final due diligence stages for a new holding which should be completed shortly. He says: “For now, with valuations remaining attractive in our existing positions, we continue to favour concentrating on those, rotating between our winners and losers at the margin.” He argues the investment trusts' sector, despite some normalisation since last October, continues to offer tremendous opportunities as a result of extreme pessimism and forced selling. “It remains a time to show patience for valuations to synchronise with fundamentals again,” he adds.

Increased: Ropers continued to add to his exposure to the biotechnology sector by topping up both RTW Biotech Opportunities Ord (LSE:RTW) and International Biotechnology Ord (LSE:IBT). Valuations in the sector remain cheap and are being noticed, as illustrated by renewed M&A activity from which both trusts have benefited.

“Meanwhile, early signs of a return of IPOs, an important source of funding for these companies, are encouraging,” he adds. Finally,Ropers argues that innovation remains an important driver of returns and both managers have a strong track record of picking successful companies in what is a highly competitive market.

Sold: he exited his position in VPC Specialty Lending Investments Ord (LSE:VSL), an asset-backed lender to, predominantly, small fintech businesses in the US. Ropers explains the decision was taken by shareholders to wind the trust down with a commitment by the board to return capital to shareholders as soon as practical. However, he says: “We think this process will take a long time given the illiquidity of its investments, thus presenting a big opportunity cost.”Therefore, he decided to exit his position early.

Tihana Ibrahimpasic, portfolio manager, multi-asset team, Janus Henderson

Reason to be bullish:our key bull case involves a continuation of the cyclical upswing, with leading indicators globally supportive of improving growth over the coming months. Despite some recent disappointment, growth could become more widely underpinned by improving real incomes across developed markets.

Reason to be bearish:our key bear case scenario would entail interest rates remaining higher for longer, eventually triggering pain for consumers and corporates alike, with defaults picking up, labour market weakness and a recessionary framework. Inflation above target poses a risk of a policy mistake.

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Bought:she opened a new position in the Janus Henderson Flexible Incomefund, as a way of getting exposure to high-quality core US fixed income assets. “The strategy benefits from active asset allocation and robust risk management deployed by experienced portfolio managers Greg Wilensky and Michael Keough,” says Ibrahimpasic.

Increased:she added to her holding in the US value manager – Dodge & Cox Worldwide US Stock fund – to diversify her exposure to areas of the market that are trading at relatively attractive valuations, but have lagged in performance year-to-date. Moreover, Ibrahimpasic was keen to still maintain broad exposure to large-cap quality growth stocks.

She says: “Dodge & Cox US Stock has been a long-standing position in our multi-manager book, and the strategy represents one of the longest track records in the US value space.”

Sold: Ibrahimpasic exited her position in the FSSA Japan Equity fund, as part of the decision to bring the asset allocation stance closer to neutral, “and due to concerns around management amid style headwinds (domestic focus, small growth exposure) and following weaker stock selection,” she says.

The four multi-manager panellists

Peter Hewittis fund manager of the CT Global Managed Portfolio Growth and CT Global Managed Portfolio Income Ord, where he specialises in investment trusts.

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

Tihana Ibrahimpasicis a portfolio manager on the multi-asset team at Janus Henderson Investors. Prior to taking on this role in 2021 she was a research analyst in the team from 2018.

Simon Evan-Cookis a multi-asset, fund-of-funds manager with over 25 years’ experience in the investment industry. He joined Downing in 2022 to set up and manage the Downing Fox range of funds.