FE fundinfo Alpha Manager James Thomson has made “meaningful changes” to the £3.3bn Rathbone Global Opportunities fund over the past two months in preparation for the reopening of economies after Covid, a moment he said was “tantalisingly close”. 
This has involved changing 15 per cent of the five Crown-rated global equity fund’s portfolio.
According to Thomson (pictured) the world is currently experiencing a “hibernation recession”, as the lockdowns have put economies on hold during the pandemic.
“I think we are about to awaken,” said Thomson. “Much like we had a preview last summer, when we came out of lockdown then, I think we're going have a similar sort of situation this time.
“And in many ways, it could look like a sequel to the ‘Roaring 20s’.
“We’re [at a point] just like after the first world war and the Spanish flu there were celebrations in the streets [for] of the ending of isolation, and sort of the start of modern consumerism in many ways. Many of the big luxury houses were founded, the Chanel-likes were born in that period.
“And so, I think we could have a kind of a revenge spending as we emerge from hibernation,” Thomson said.
Repositioning the Rathbone Global Opportunities fund towards this outlook, Thomson said he’d moved the fund away from the lockdown winners and into what he called “re-opening reflation beneficiaries,” in the fund’s latest monthly update.
These included areas of the market the fund hasn’t held for several years.
Indeed, for the first time since 2016 when the UK voted to leave the EU, Thomson has increased his UK allocation.
Like some international investors, Thomson has stayed away from UK equities due to the uncertainty caused by Brexit and the transition to post-EU life.
In a previous conversation with Trustnet, Thomson explained that the fund wouldn’t be making a drastic return to its pre-Brexit 25 per cent UK weighting. But the trade deal has put the UK “back on the menu again”, Thomson said.
“We made our first move,” he explained. “Expect more in the UK in the month ahead.”
Another major move for the fund was buying banks, something that it hasn’t typically done for a while, according to Thomson.
“For the first time in five years we've been buying banks, which is a pretty major 180 [degree turn] because historically we’ve not liked banks,” he said.
“And actually, to be fair, I still don't like the big universal banks. But we've been able to find some fast-growing regional banks that are kind of outmanoeuvring their competition and doing something a little bit different.”
In the latest monthly update, Thomson said the fund still refuses to buy bigger, undifferentiated universal banks because he believes they are “purely at the mercy of the rate cycle and circumstances totally outside their control”.
He continued: “We think big banks are too reliant on their brands — and they’re not scared enough to make the changes they need to succeed — so their profitable backwaters quietly get diverted.”
This has steered the fund towards regional names such as Silicon Valley Bank and First Republic Bank, examples of what Thomson called “nimble and established gatekeepers to technology and innovation companies — the financial plumbing for the fastest growing part of the economy”.
Another change for the Rathbone Global Opportunities fund is towards the industrial and consumer retail space.
In the monthly update, Thomson said industrial companies look attractive due to the “rare confluence of events” that sees inventories at historic lows and longer-cycle capital spending plans having troughed.
As such, companies such as gas company Linde, engineering and tools firm Sandvik and SKF, which make ball bearings, are all plays on this theme.
In the retail sector, Thomson said he has focused on companies with excellent growth potential that have been temporarily hit by the pandemic, specifically apparel and retail names such as Next, TK Maxx and Nike.
“We think the reflation trade and pent-up demand could drive significant growth against weak comparisons a year ago,” said Thomson.
Looking back at the Covid-19 crisis and navigating the fund through arguably one of the most testing time in markets, Thomson said it had actually been “one of the great buying opportunities of [his] lifetime", despite not knowing what changes the pandemic would bring about.
“We deployed more cash in that early lockdown, that first lockdown, than any time in the history of the fund,” he said. “We put £300m in and did almost 100 trades in that first lockdown.”
But one of the key things which got the Rathbone Global Opportunities fund through the worst parts of the Covid-19 crisis were practices brought in after the 2008 global financial crisis.
Indeed, a key element to the manager’s approach is maintaining a defensive bucket of holdings that are less economically sensitive, with slower and steadier growth prospects. While it isn’t an area of the fund which necessarily performs well in bull markets, it does protect the fund during market dislocations.
“One of the things that I changed after the 2008 crisis was to think much closely about risk management,” said the manager. “Having a portion of the fund that is more defensive, precisely to protect us during market dislocations of which you never really know what sort of flavour they will take.
“And so, I'm sort of glad that we did that because in the early part of this crisis when the markets were collapsing, it was precisely those companies that provided a defence and ballast.”
Nevertheless, Thomson said investors should expect greater levels of volatility going forward, although equities continue to look attractive from a long-term, five-year perspective.
“The mere fact that I'm struggling to find space to buy into new ideas where I have so many of them, I think that kind of paints a picture of a pretty exciting period for the stockpickers,” he said.
“And then you add that to the sort of hibernation we're awakening from I think that's a pretty bullish outlook in the medium and longer term.”
Performance of fund vs sector over the past 5yrs
Source: FE Analytics
Thomson runs the Rathbone Global Opportunities fund with Sammy Dow.
Over the past five years, it has made a total return of 152.96 per cent, outperforming the IA Global sector (105.35 per cent). It has an ongoing charges figure (OCF) of 0.78 per cent.