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Investors start to regain their confidence: Portfolio ideas

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Written by: Darius McDermott
10/06/2022
If the latest figures from the Investment Association are anything to go by, investors appear to have regained some of the confidence they lost during a torrid start to the year.

Some £553m was invested into funds during April – a sharp reversal given a whopping £7.1bn was withdrawn during the first three months of the year with £3.5bn in March alone.

Interestingly, a significant proportion of those inflows came from savvy early-bird investors looking to make the most of their annual allocation into Individual Savings Accounts (ISAs).

After a challenging start to the year, the data makes encouraging reading, especially as spare money and confidence levels are running low.

Best-selling areas

The best-selling sector overall was IA Global Equity Income. According to Miranda Seath, head of market insight for the Investment Association, this was not just driven by investors looking for alternative sources of income.

“As the outlook for equity growth weakens, investors have looked for funds investing in companies that pay good dividends to top-up the overall returns.”

Indeed, this sector has held up well this year, falling 1.8% year-to-date vs a drop of 5.7% for the global index.

One fund I like a lot in this area is Guinness Global Equity Income. Its high-quality characteristics have helped it outperform in each of the largest market drawdowns seen over the past 11 years and this year has been no exception – it is down just 0.7%.

The portfolio is pretty concentrated and contains 35 equally weighted stocks. At the moment this list includes corporate giants such as British American Tobacco, BAE Systems, Novo Nordisk, and Procter & Gamble.

However, the one-in, one-out philosophy of the portfolio ensures the fund will constantly represent the managers’ best ideas. And, so far this year, 23 of its 35 holdings have given dividend updates – 20 increasing their pay outs and three keeping them flat.

Hedging their bets

Other investors have hedged their bets a bit more – investing in funds that don’t just invest in equities, but bonds and other assets too. Mixed Investment 40-85% Shares was the second most popular sector during April, while the IA Volatility Managed sector (the objective of funds here is to manage their returns within specified volatility parameters) was third.

The managers of Jupiter Merlin Balanced Portfolio, which sits in the Mixed Investment 40-85% Shares sector, said recently that markets are adjusting to a new era in which central banks can no longer be counted on as being supportive.

“Many are attempting to pick the right moment to catch the falling knife,” they said. “Our view is that in such febrile conditions, it pays to keep a flexible and open mind. The Jupiter Merlin Portfolios are certainly not immune from market volatility, but they are expected to be less volatile over time.”

David Coombs, manager of Rathbone Strategic Growth Portfolio which sits in the Volatility Managed sector, agrees that clarity is difficult given the complexity of current conditions and that we are in a bear market for stocks at the moment. “That doesn’t necessarily mean that markets are doomed for the foreseeable,” he said, “but there definitely needs to be a whole host of good news for stock prices to perk up again.”

Worst-selling sector

For me, the biggest surprise was that the UK All Companies sector was the worst-selling sector during April, with outflows of £486m.

The UK stock market – with its bias towards energy, commodities, tobacco and financials – has been one of the few markets to stay in positive territory this year and still looks good value.

It’s also a sector that’s packed full of experienced managers. A prime example is the IFSL Marlborough Multi-Cap Growth fund run by Richard Hallett. Hallett has been at the helm of the portfolio since joining the company back in 2005, and prefers to invest in leading companies within growing industries.

The portfolio benefits from having an unconstrained approach. This means Hallett is free to invest in small, medium and large UK companies. It’s down to him to make these calls.

There’s also the Threadneedle UK Extended Alpha fund run by Chris Kinder. While it favours large cap companies, it takes a slightly different approach. As well as picking stocks he expects to do well, Kinder can make money on those companies he believes will do badly via an investment technique known as shorting. This enables him to make a profit when the share price falls.

Darius McDermott is managing director of Chelsea Financial Services and FundCalibre

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