Five key funds
Most of our investments are now direct securities, rather than mutual funds. With the help of our fixed-income and equity analysts, we buy large-cap equities and large-issue bonds directly in the UK, US and Europe. We buy smaller fixed-income issues in the UK as well. We use collectives to access niche areas or those that can be best executed by specialist teams. Here are five examples of this:
JP Morgan Japanese Investment Trust
Japanese equity markets have been dismal this year, but we are confident they will bounce back. Our overweight in Japan is based on a revolution in boardroom governance. For decades, Japanese businesses have offered shareholders a shabby deal. That is changing. Last year was a record year for Japanese share buybacks, with ¥5trn (£32bn, $46.5bn, €40.9bn) announced. And the amount announced so far this year is more than double where it was 12 months ago. These companies, which have endured decades of deflation, hold enormous piles of cash.
AHFM Enhanced Equity
We like the flexibility and versatility of structured products. They allow us to secure decent gains that are uncorrelated with the rest of our portfolio. We use these contracts in both the US and UK. In the UK, where we are close to the market, we buy them directly. However, in the US we use the AHFM fund, which is run by a specialist team that has the benefit of massed buying power.
M&G Global Macro Bond Fund
Global markets have been buffeted by poor sentiment recently. However, this fund offers returns that are unrelated to major stock markets or sovereign debt. Manager Jim Leaviss has been at the helm since the ‘go-anywhere’ fund’s launch in October 1999, using macroeconomic trends to post strong returns. As the central banks of Europe and Japan continue to unleash more money into their economies, the US is raising interest rates. Such an environment is a perfect hunting ground for Leaviss and his team, we think.
Henderson UK Absolute Return
This classic long-short equity fund relishes volatility. It takes short-term calls on individual shares to throw off returns uncorrelated with equity and fixed-income markets. This is exactly what we are looking for in an alternative investment. Ben Wallace has managed the fund since its launch in April 2009 and was joined by Luke Newman in March 2010. The portfolio is split into two parts, the first being a collection of bottom-up, longer-term positions the managers have taken on equities. The second part is a tactical book of trades that are on a one-month timeframe.
Biotech Growth Trust
As western populations age and the middle classes of emerging markets swell, global demand for healthcare is set to balloon. The only way for society to deal with this, we believe, is through technological and scientific innovation. That is why we own this specialist closed-ended fund, which has the ability to take long-term calls on a particularly volatile industry.
