Bankers (BNKR), the global investment trust managed by a team of regional specialists at Janus Henderson, has capped its investments in the US as it feels its stock market is too expensive and there are better opportunities in Europe and Japan.
Over the past five years the £1.1 billion trust has shifted its equity exposure away from the UK to North America, with the allocation to the latter hitting a peak of 30% last year. After some profit taking this has fallen to 28%, still its largest country weighting ahead of the UK at 26%.
The North America portfolio managed by Ian Warmerdam was the best performer for Bankers, delivering a total return in sterling of 24.3% in the year to 31 October.
Overall, Bankers saw its net asset value increase (NAV) by 16.3% with all its regional portfolios beating their benchmarks as a weak pound inflated returns from outside the UK. However, shareholders enjoyed a higher total return of 23.5% as investors bought into the stock after the EU referendum in the previous yea, causing the discount – or gap between its share price and NAV – to virtually disappear.
‘Many market commentators have, over the years, tried to call the top of the North American market based on stretched valuation levels,’ said Bankers chairman Richard Killingbeck.
‘But despite a backdrop of increasing interest rates, multiples have continued to rise and in certain sectors appear to be significantly beyond any normal valuation levels. With this in mind we are unlikely to increase our US asset allocation in the short to medium term.’
Bankers’ lead manager Alex Crooke (pictured) said he had responded to elevated valuations in the US by allocating money to better opportunities elsewhere. ‘These reductions proved to be well timed,’ he said. ‘The proceeds from US sales were reinvested in Europe and China, and later in the year, Japan.’
Crooke, who has overseen Bankers for 14 years, is handing responsibility for the UK portfolio to David Smith, manager of Henderson High Income (HHI) investment trust. This follows his promotion to co-head of equities from Henderson’s merger with US fund manager Janus Capital Group.
Crooke will remain responsible for Bankers’ overall asset allocation and deciding how much money is given to colleagues at Janus Henderson: for example, Tim Stevenson, manager of Henderson Eurotrust (HNE), who runs the European portfolio which gained 21.5% in the financial year; Michael Kerley, manager of Henderson Far East Income (HFEL), who looks after Asia Pacific; Charlie Awdry who is responsible for China, which soared 55%; Junichi Inoue, who heads up Japan and generated 9.8%; Nicholas Cowley on emerging markets, up just 5.8%.
Crooke, who has worked with Smith (pictured) for five years, said his ‘clear focus on companies listed in the UK will deliver returns as the future ramifications of Brexit become clear’. The UK rose 12.7% in 2016/17.
Crooke cautioned ‘as the year progressed, sterling started to strengthen against the US dollar and next year we could see the positive effect on earnings reverse’.
Brexit continues to provoke concern, as does fading Chinese growth and shrinking liquidity but Crooke said despite this, the outlook for global markets was positive.
‘A negative outturn from any one [event] could result in a sharp fall in stock markets. However, the seeds of a global recession or prolonged market collapse are not yet obvious and so share prices may continue to rise,’ he said.
Switch to cyclicals
Although the cheaper ‘value’ stocks that Bankers prefers have been out of favour in a growth environment, Crooke said growing inflationary pressures required a more careful analysis of valuation and the price paid for growth.
‘At a stock level, we are beginning to find that better levels of growth globally and the slow normalisation of interest rates is benefiting cyclicals: those stocks that are more attuned to economic growth such as financials and industrials.
‘We have benefited from the share price appreciation of US technology shares but, towards the middle of the year, started to rotate these holdings into more diversified areas, reducing the potential impact should they start to underperform,’ Crooke added.
Bankers’ board has changed the benchmark used to measure Janus Henderson’s performance. Previously it used a 40%/60% combination of the FTSE All Share and MSCI World ex UK indices but will in future replace that with the FTSE World index.
Including dividends, over the past 10 years Bankers’ has grown its NAV by 157.6%, beating the 100% gain in the FTSE All Share but behind the 166.5% growth in the MSCI World ex UK, according to data from Numis Securities. This is higher than the average 149.6% achieved by global equity trusts.
As a result of the discount narrowing from 10% to under 1% today, shareholders have received a much higher total return of 197%, again beating the Numis sector average of 176%.
For a primarily growth fund, Bankers yields a relatively high 2.1% in dividend income. The board has declared a final quarterly dividend of 4.8p, taking the total for the year to 18.6p per share, an increase of 9.4% on the 17p paid in 2016. With full-year revenues per share rising 16.9% to 20.49p, Bankers could lift the dividend and also put more money into revenue reserves which are now 1.7 times greater than the payout to shareholders. Consequently, the board is confidently forecasting a dividend increase of at least 6% this year.
The ongoing charges paid by shareholders fell to 0.44% from 0.52%, below the 0.63% average of global investment trusts, according to the Association of Investment Companies.
Bankers' latest asset allocation at the end of November stood at: North America 26.9%, UK 26.1%, Europe 16.8%, Pacific 15.8%, Japan 11.8% and emerging markets 2.7%.