Sexton says the Saunderson House portfolios were well-positioned for many of the key market rotations of 2016: they were overweight in emerging markets, for example, and long on economically sensitive areas.
Though this was less because the group foresaw the revival of emerging markets, the vote for Brexit or Donald Trump’s presidential victory, but simply a reflection of the valuation principles that drive its allocation.
Long term view
An appraisal of the relative valuation merits of the four main asset classes used for clients – equities, bonds, property and cash – saw Sexton hold higher equity risk throughout much of 2016.
He has also been a long-term holder of emerging markets – too soon, he admits, but it finally went well for the group’s portfolios last year.
He says: “We have had a long-term value approach. We were naturally leaning against the quality defensive bond proxies, which had become very expensive.
“We had moved towards cheap cyclicals, such as financials. They have started performing now, but we were a little early.
“Equally, at the start of 2016 emerging markets looked like the wrong position. They came through well in the end – up by more than 30% – but we had a long wait.”
Moving property
The group saw a similar pattern with its UK commercial property exposure. It reduced its commercial property weighting by a third ahead of the Brexit vote, not because of any sixth sense that the vote would be to leave but because commercial property had been on a strong run.
It recognised that commercial property would be sensitive to Brexit and reduced the holding from 15% to 8%. The rest is history. Today, the group sees some value returning to the asset class.
Sexton is afforded some flexibility to follow this approach by his client base, which comprises long-term investors such as city professionals, charities, trusts and other institutional clients.
The group keeps its client base relatively tight and focuses on building trust. Over time, this helps it take a total return approach to portfolio management.
Income focus
This is most noticeable in areas such as income generation. Saunderson House will often take income from capital, rather than seeking out higher income assets.
“We can go to the markets with the most upside, rather than because it’s a good dividend payer,” says Sexton. “In recent years that has become more and more important as income has become harder to find.”
At the moment, he is reducing his equity weighting. “Equity markets have had a remarkable run and there is a lot of optimism for 2017 around improving growth and fiscal spending. This is driving optimism on economic growth and leading to a focus on inflation. There has been a rotation in bond markets from the lows in August, which has also driven a rotation in equity markets.
“Markets have moved a fair way but we don’t want to get carried away. There is just as much risk as there was this time last year and markets are far higher.”
