Fund manager update

  • Fund manager update
  • 7 minute read

By Riitta Hujanen


February continued the positive start to the year with all funds in the range posting positive returns: Conservative +0.8%, Balanced +1.2% and Growth 1.6%. Our relatively defensive positioning across the range has proven valuable over the last twelve months with all funds outperforming their respective IA peer group on a rolling 12 month basis.

The concerns we outlined in January persist: US-Sino trade relations have yet to be agreed and Brexit trundles on towards its March 29th deadline without resolution. These both represent significant risks if left unresolved. Fortunately, the US Fed has helped settle markets, declaring that it will not act rashly. Markets, however, remain delicately poised.

Trading activity

Thankfully, the market has been well behaved YTD. There was little trading activity in the Funds in February as we monitored the developments in the US-China trade negotiations and the Brexit situation. The US monetary policy appears to have settled into a medium-term “hold” position and market fears of a FED policy error by raising rates too quickly are subsidising. The earnings season has brought few surprises in our portfolio and generally we are pleased with the performance of our investments. The only trade was a small addition to Fiserv shares in Conservative and Balanced, due to being encouraged by the earnings growth potential which the recent acquisition of First Data brings to the investment case. Growth already had a full position in Fiserv so we didn’t add holdings there.

Thoughts in February

I was asked recently if a stock which has experienced a stop loss may be given a second chance in the portfolio. The answer is yes! If it can later again prove fitness by jumping over the usual required hurdles which apply to all stocks. Firsttimers as well as those given the second chance are to adhere to the following:

  1. More than 20% upside potential
  2. Good business quality
  3. Positive share price momentum (trading over its 50 day moving average)
  4. Adds value to the portfolio by providing diversification or other desired qualities such as low beta or cyclical exposure for example (depending on what we require in the funds at the time)

Take the case of BT, which is currently being held in the funds again after having experienced a stop loss in 2016. Since then we think BT has remained cheap, offering more than 20% upside the majority of the time. It broke away from its weak share price trend in September 2018; it was given a second chance, especially because it did provide some domestic defensiveness at the time of exceptional volatility and turbulence during Q4/18. As for good business quality, our telco analyst had a buy recommendation for BT, so it is investable. However, I have some question marks around the business case (pension deficit, increasing capex requirements, sustainability of dividend). Fair to say, that BT passed the “business quality hurdle” rather narrowly. However, we believe it did do a good job being defensive and outperforming in a falling market as expected. BT remains a holding that is closely monitored due to it having a previous stop loss to its record, which automatically makes us more cautious.

You might ask, what happens to stocks which disappoint twice? Well, we are all about giving stocks the benefit of doubt but it would really require a major change in management/business model or something else very substantial for us to turn positive again. This hasn’t happened in the past seven years anyway.

Stock of the month: 3i Group

Financials rebounded pretty nicely in January and our star performer was Partners Group, which benefited from a more risk-on environment.

  • +11% in February, +22% YTD & 35% since purchase.
  • 3i Group is an international investor focused on private equity and infrastructure.
  • The portfolio is relatively defensively positioned given ~19% weight in infrastructure and top down themes such as ‘value for money’ and ‘favourable demographics’ that have driven strong structural earnings growth.
  • The largest holding, Action, a non-food discount retailer, has showed continued strong momentum with FY18 revenue growth of 23% to EUR4.2bn after opening 230 stores. 3i’s medium term goal is to grow sales to EUR10bn.
  • In H2 2019, 3i have the positive catalyst of a partial sale of Action out of Eurofund V with uplift to the carrying value anticipated.

Close Portfolio Funds discrete performance as at 28 February 2019








Close Conservative Portfolio







IA 20-60







Close Balanced Portfolio







IA 40-85







Close Growth Portfolio







IA Flexible Investment







Source: FE Analytics; all are X Acc share classes; performance is total returns, net of fees with dividends reinvested.

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Important information
This article is only intended for use by UK investment professionals and should not be distributed to or relied upon by retail clients.  The value of investments will go up and down and clients may get back less money than they invested. Past performance is not a reliable indicator of future returns. The information contained in this document is believed to be correct but cannot be guaranteed. Opinions constitute our judgment as at the date shown and are subject to change without notice. This document is not intended as an offer or solicitation to buy or sell securities, nor does it constitute a personal recommendation.

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