Investment Update, 30/04/2021
As James has discussed in his commentary this week, Tideway’s quarterly investment committee meeting was a productive one with topics, including, but not limited to, US Fed policy, inflation and yield projections, broad equity market valuations as well as TS Lombard’s key views all covered. As a result of these discussions, we have some minor portfolio changes to report which are now viewable when you login to your account.
Lindsell Train Global Equity was sold in all Stable Return portfolios and our Equity Blend model with the proceeds reinvested in existing holdings; 50% Heriot Global and 50% Artemis Global Income. Lindsell Train Global Equity remains in our Equity Growth portfolios.
The above fund switch was made with the following thoughts in mind:
– Reducing the total number of funds held and by extension the total number of underlying holdings. We felt this was necessary after the additions of Fidelity Asia Pacific Opportunities and Montanaro Better World strategies in Q4 last year, with no equivalent full sales. With regards to Equity portfolios, the total number of funds was at the upper end of our range.
– Adding more cyclicality to the portfolio – As the world continues to recover from the devastation of Covid, and wider market earnings recover, we believe there is an opportunity for those strategies investing in Value or more cyclical areas of the market to outperform. Artemis Global Income is one such strategy with a summary included in the last paragraph (taken from our quarterly valuation commentary).
– Reducing our US underweight – Although we feel that US valuations are some of the most expensive, we felt this was a good opportunity to close some of the underweight position which we have historically run. Both Artemis Global Income and Heriot Global both currently have over 50% of their portfolios allocated to the US, whereas Lindsell Train Global would typically have an allocation around 30%. It must be noted however that due to the size of the trades, the overall impact in this regard is relatively small.
On top of this, the committee also made the decision to not rebalance portfolios and to let our winner’s run, with the rationale that with the economic recovery to continue (baring any virus mutations), there is unlikely to be an immediate catalyst for a derating of market wide earnings multiples. Furthermore, our positions which were most overweight their target weighting (strongest performers) were the funds investing in cheaper, or more cyclical areas of the market and the sorts of companies we were looking to gain more exposure to rather than reduce.
Artemis Global Income:
Artemis Global Income is one of the longest tenured funds in Tideway’s Model Portfolio Service having been held since inception in September 2016. Again, like with our value strategies, the fund has faced headwinds versus its benchmark having been not being able to hold growth stocks such as Amazon which have dominated index returns, since they do not pay a dividend. The latter part of 2018 in particular was a poor period for the strategy with the portfolio having a less than ideal distribution of risks, considering the macroeconomic picture at the time, between its Risk, Growth and Core strategies. Since then, we feel the manager has done an excellent job with the portfolio, taking a higher conviction approach (c.65 names versus over 100 in 2019) and we believe the fund is well positioned to deliver strong total returns, and dividends, to our clients over the coming years. As you might expect, having been one of our strongest performers this year, the portfolio has been positioned for a global recovery with the highest allocation to its ‘Risk’ strategy since the inception of the fund (Risk at ~37%, Growth at ~33% and Core at ~30%). This is relatively evenly distributed amongst many different opportunities with no exceptionally large individual bets which is good to see. In terms of sector positioning, healthcare and IT have been reduced meaningfully with the opportunity cost of more cyclical sectors such as financials and materials the primary reason for this. The fund remains overweight materials and financials (insurers and service companies) with the inbuilt technology underweight (lack of dividends.) remaining high. Despite value having performed exceptionally well the last two quarters, it is their belief that the Value/Growth rotation still has a long way to go (a view which we strongly agree with), though acknowledge they are closely monitoring risk levels should lockdowns not abate as quickly as the market is anticipating or, in the worst-case scenario, vaccination programs begin to fail should a mutant strain begin to reduce efficacy of the current available vaccines.
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Rotations, Valuations, & Reflections
Market Insight, 30/04/2021
Investment Update, 16/04/2021