Manager reveals his ideal mixed bag
A “good mix” of holding types is the key factor for a cautious managed fund, says Aberdeen’s Rob Bowie. He welcomes a little high-risk exposure along with a solid weighting of UK equities.
Cautious portfolios are designed to provide steady returns even in periods of economic or political turmoil.
Rob Bowie, a senior manager on the Aberdeen Multi-Manager Cautious Managed Portfolio, says that a “good mix” of asset types was the key factor for any cautious managed fund in achieving consistent performance during the economic crisis.
“An example of two funds that give us balance is JO Hambro UK and Artemis UK Special Situations,” says Bowie. “The two contrast perfectly as one deals with a more high-octane sector and the other a more steady core sector, but both seek decent income and capital growth for investors.” (article continues below)
Despite the strong performance of emerging markets, the fund is heavily weighted towards British equities to take advantage of their relative stability.
Bowie says that although it is a good idea to have a small amount of high-risk exposure, events such as the Middle Eastern protests prove that there is always a political risk in emerging markets.
He adds that it makes sense for fund managers to take a heavy defensive position in developed markets despite these markets’ often sluggish economic growth.
Central banks are continuing to support economic activity by maintaining a loose monetary policy, Bowie points out. The eurozone crisis provides another reason why it makes sense to remain cautious.
He is a supporter of the British government’s austerity measures, which he says are starting to take effect. He sees them as necessary to tackle the public debt burden.
Further cuts in 2011 are likely to see many public sector workers loosing their jobs. But Bowie says the British corporate sector is in good enough health to hire enough workers to help to redress the situation.
Perhaps the most important factor to remember is how firms are likely to perform at different stages of the economic cycle. Small and mid-sized companies, for example, suffered greatly during the crisis in 2008 but are leading the way with recovery.
Diversification should enable fund managers to take a balanced position between firms at different stages of the cycle.
In choosing funds in which to invest Bowie takes a cautious approach.
“Our mandate is not a high-risk, shoot-the-lights-out job, so we are essentially looking for fund managers who are best of breed in their area who will help to bring us consistent returns,” he says.
JO Hambro UK Equity Income, which has a significant holding in the insurance sector, is one of the portfolio’s better-performing British holdings. Insurance companies have generally performed well despite the weakness of the British economy.
For Bowie this underlines the advantages of broad diversification. It is an approach that he hopes should appeal to investors even if investor risk appetite is subdued.
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