After a challenging six months to start the year, Liontrust’s multi-asset team has rung some changes to the portfolios, including strategic calls, tactical shifts and three fund swaps.
Rising inflation is proving toxic for investment markets, with equities, bonds and currencies all suffering higher volatility in the first half of 2022.
While there have been pockets of performance, such as oil majors and miners, it has been a fairly disparate market compared with the past decade that investors have enjoyed.
John Husselbee, head of Liontrust’s multi-asset team, has said he is in the process of making some changes to his portfolios.
From a strategic point of view, the portfolio manager is reweighting the model portfolio range from UK, European and emerging market equities and towards the US, Japan and Asia, while in the fixed income space developed market government bonds exposure fell and high yield declined, while inflation-linked and emerging markets debt increased.
“At the headline level, we have reduced the magnitude of our active bets, cutting back equity exposure and tactically increasing cash to give us scope to re-enter markets when valuations are attractive,” he said.
From a tactical perspective, Husselbee is lowering the equity overweight to neutral and lowering exposure to equity beta-like assets such as convertibles, while reallocating that into the Liontrust Diversified Real Assets fund.
“We believe real assets should provide a differentiated return and income profile and, importantly given the backdrop, an element of inflation hedging,” he said.
Turning to individual funds, in the income portfolio the manager has swapped out the Redwheel Enhanced Income for JOHCM UK Dynamic despite the former’s deep value strategy coming back into fashion so far in 2022.
Although the Redwheel fund has performed well over the recent rotation, “this comes after several years of weaker returns”, he said.
“We have concluded that the team’s concentrated strategy, investing in deeply discounted companies and not necessarily needing to see a catalyst for potential re-rating, carries too much risk of either mistakes or falling into value traps in declining industries, especially with the speed of disruption, innovation and transition we see now.”
Total return of funds vs sector and benchmark over 10yrs
Source: FE Analytics
Conversely, JOHCM UK Dynamic (which has the upper hand on its rival over 10 years) is more diversified with 50 stocks versus Redwheel’s 25-30 holdings.
The fund is described by Husselbee as “value-lite” as its rationale for holding a company requires the identification of a catalyst for change, which should benefit recovering or undervalued companies in the medium term.
“Performance has been more consistent, although it should be noted there is a difference in yield, with Redwheel more income focused and using a covered call strategy to enhance this whereas JOHCM UK Dynamic has a total return objective,” said Husselbee.
In the growth portfolio there were two main changes. In Europe, Man GLG Continental European Growth was replaced with BlackRock European Dynamic, while in the US AB American Growth Portfolio took the place of AXA Framlington American Growth.
Both European funds have performed well over the past decade, up 262.7% and 232.8% respectively, however they have each come off the boil this year, both down more than 20%.
Total return of funds vs sector and benchmark over 10yrs
Source: FE Analytics
“These two European funds are similar so this move is more a case of rationalisation, bringing our multi-asset portfolios and funds closer together, as opposed to concerns with the strategy,” Husselbee said.
“In essence, both pursue a high-quality approach but BlackRock European Dynamic is backed by a larger team and has a more flexible strategy, with a high-quality backbone but the capacity to rotate into value when the opportunity exists.”
The move in the US is also a case of rationalisation as both funds have again done well, beating the S&P 500 over the past 10 years – a notoriously tricky feat.
Total return of funds vs sector and benchmark over 10yrs
Source: FE Analytics
“Again, both look to uncover persistent growth opportunities but AB American Growth tends to be a little more concentrated and adopts a purer growth style, which we believe is viable given the US market composition – although it should be blended with a more core or value-biased proposition,” said Husselbee.
| Fund | Sector | Fund size | Fund managers (s) | Yield | OCF | Launch date |
| AB American Growth Portfolio | IA North America | £5,052m | Frank Caruso, John H. Fogarty, Vinay Thapar | 0.94% | 02/01/1997 | |
| AXA Framlington American Growth | IA North America | £1,018m | Stephen Kelly, David Shaw | 0.0% | 0.82% | 21/06/2011 |
| BlackRock European Dynamic | IA Europe Excluding UK | £4,074m | Giles Rothbarth | 0.0% | 0.93% | 26/02/2010 |
| JOHCM UK Dynamic | IA UK All Companies | £1,226m | Alex Savvides | 2.3% | 0.79% | 23/10/2009 |
| Man GLG Continental European Growth | IA Europe Excluding UK | £971m | Rory Powe | 0.0% | 0.90% | 30/06/1998 |
| Redwheel Enhanced Income | IA UK Equity Income | £82m | John Teahan, Ian Lance, Nick Purves | 5.0% | 1.15% | 09/04/2014 |