Equity bulls maintain balanced run

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The managers of Thames River Capital favour a hefty bias to British equities, which has increased over the past year as performance improved and the pair cut allocation to bonds.

According to Rob Burdett, the co-head of multi-manager at Thames River Capital, there is a single basic principle in running a Balanced Managed fund. He says: “The rules are so broad you tend to get performance going all over the place. The only real rule is a maximum of 85% in equities.”

Thames River offers a range of funds that cover all the Investment Management Association’s (IMA’s) Managed sectors. Burdett says he and Gary Potter, his colleague, tend to stick quite close to this maximum figure on their fund in the IMA’s Balanced Managed peer group. “The least we would have been, even in the credit crunch, was 60%,” he says.

Burdett favours equities over bonds and bonds over cash. “It’s a view we’ve held all year. Markets have gyrated on political and market events, but fundamentals definitely underpin our view. You can always be torpedoed by political and macro events but we don’t see a situation like 2008.”

Burdett speaks to a lot of bottom-up fund managers, all of whom note that companies are overachieving. “UK Special Situations managers say that operationally companies are doing better than expected,” he says.

“There’s almost a goldilocks effect. It’s not hot enough for companies to be profligate with spending, which is keeping margins quite high.”

In the bond area, the fund is at the low end compared with its peers. “We’ve favoured strategic and high yield bonds based on fundamentals
and the fact they’re less sensitive to interest rate swings, which are particularly unpredictable at the moment,” says Burdett.

The British equities weighting within the fund has been gradually rising, in part owing to equity performance, says Burdett. “If we were to go back two years, we had 27% in UK equities. That’s now 34-35%. That would in part be explained by fixed [income] coming down from 21% to 16%. Fixed income is the biggest faller [in terms of allocation]. We’ve got quite a bit less in America compared to a year ago due to concerns about the dollar. The low point was 9.2% at the end of January; it’s back up to 12-13% at the moment.”

The only significant structural switch has been more of a bias towards British equity income, with investors getting used to receiving more of their returns via dividends. As a result the JOHCM UK Equity Income fund, managed by Clive Beagles and James Lowen, was added in March this year.

“It’s not hot enough for companies to be profligate with spending, which is keeping margins quite high”

Within the fund’s fixed income exposure, as well as playing strategic bond and high yield, Burdett has added the Old Mutual Global Strategic Bond fund, managed by Stewart Cowley. “He has a roving global view. The fund’s structured as a Ucits III vehicle so if he makes the right calls he could benefit from rising rates.”

In other regions, Burdett and Potter have pieced together what they say are groups of funds that will work well together. Funds with differing styles such as Schroder UK Alpha Plus are included as something of an insurance policy.

“There are always one or two positions pointing the other way, to feel for turning points and reduce volatility,” says Burdett.

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