Keeping faith with emerging markets

Fund Strategy - 23 Apr 2012 | By Beth Brearley

The £39m City Financial Multi Manager Growth fund has enjoyed a good run since the start of the year, when it switched from the IMA Global sector into the IMA Mixed Investment 40-85% Shares sector.

North Investment Partners’ John Husselbee, the fund’s manager, says with the increase to four managed sectors, it made sense to “line up the four City Financial funds across each of the sectors”.

The fund, which is up 6.47% year to date, against the 5% sector average, has about 60% in equities, 15% in fixed income, 15% in hedge funds and alternatives, and 7% in cash – a breakdown that Husselbee says has been fairly consistent.

“We have had a good start to the year, which is interesting when you look at the fund’s positions,” Husselbee says. “The fund has been underweight equities since the start of the year. Our equity exposure has mainly been in developing markets; we are underweight the UK, Europe and the US, but overweight Asia and the emerging markets.” (FoFs continues below)

“We have taken a cautious approach but favoured the economies we’ve liked for the long term – Asia and the emerging markets.”

At the time of the Tsunami last year, Husselbee saw an opportunity to buy into Japan, so initiated a 10% weighting. The current exposure to Japan is through Martin Currie Japan and Jupiter Japan Income, representing 15% of the portfolio.

“When we look at our overall strategy, we like income and we like quality, so we have a bias towards large-cap income managers. We also like growth, which you find in emerging markets and Asia, and we like value opportunities, which Japan is, and has been many a year,” Husselbee says. “When Japanese equities sold off 20%, it was a great entry point. Jupiter and Martin Currie have the experience which fits into the category of great manager.”

Husselbee says Japan has performed well over the past two months, since the Bank of Japan expanded its asset purchase programme. “Even though it is not of the magnitude of the US and the UK, Japan is showing its willingness to flush out deflation,” Husselbee says. “We are right to have doubts about whether the Japanese government is serious, but there has to be a point when things will change.”

He says the fund’s underweight to fixed income has also boosted performance, particularly his decision to avoid government debt for the past year. “We have a very negative view on government debt. We want strong balance sheets with growth, not weak balance sheets with no growth.”

Although Husselbee has recently increased the fund’s equity holdings, he maintains the position will not be taken to an overweight.

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“There is a feeling of déjà vu on 2010 and 2011,” he says. “The issues are still there in the eurozone, the deficit in the US hasn’t been tackled, although it is expected to be tackled after the election – we will see – and last week we saw growth in China was less than expected.

“Although the trade report shows exports have bounded back, imports were less than expected, so consumer demand is not as strong as expected. A lot of good data has been priced into the markets too rapidly.”

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