When a call on the European market turned sour, Richard Champion, deputy chief investment officer at Canaccord Genuity Wealth Management, was ready to accept the mistake and remedy it.
‘We closed a position in Europe that had been a little unsuccessful, where we had taken the view European economic momentum would continue strongly from the second half of 2017,’ he says. ‘But it continued to decline progressively through the year and fairly early in the year we took a bit of Europe out.’
‘We accepted we made a mistake and I’m glad to say that proved the right thing to do. But it was relatively painful because it was at a loss to our clients.’
Over the third quarter, the European equity exposure was around 5%, invested in the BlackRock European Dynamic (FD) fund, which is managed by Citywire + rated Alister Hibbert.
The team has now rotated that European position in the firm’s Balanced model into the US, which he says ‘has held up better than most other markets’. In the US he holds the Artemis US Smaller Companies fund, managed by Citywire A-rated Cormac Weldon.
Weldon, who ranks 2/45 in the Equity – US Small & Medium Companies sector over three years, has returned 88.1% over that time period, compared with 58.6% delivered by the average manager.
Champion also has a thematic play in the US, which he gains exposure to through the Polar Capital Healthcare Opportunities fund, run by + rated pair Daniel Mahony and Gareth Powell. Over one year the fund ranks second out of 27 in its Citywire sector, returning 19.5% to investors versus the average manager’s 9%. A little over 6% of the portfolio is invested in the Polar Capital fund.
‘Within equity itself, we have gone underweight Europe, but are still overweight emerging markets and also North America where we have both country exposure and thematic exposure as well,’ says Champion. ‘And technology, a lot of it has come off very sharply but we still like tech longer term.’
He added the portfolio is underweight UK equities, similar to many of its peers, based on Brexit fears and the prospect of political instability.
He pointed out, however, the team is ‘actively reviewing the position’ as valuations are starting to look better, and may look to neutralise it if there is a positive outcome to Brexit.
The portfolio typically has around 22% in UK equities and Champion highlights three funds he is happy to invest in. The Investec UK Alpha fund run by Simon Brazier, Lindsell Train UK Equity managed by Citywire AA-rated Nick Train and Citywire A-rated Alex Wright’s Fidelity Special Situations fund.
Out of the three funds in the UK All Companies sector, Train comes out on top, returning 2.6% to investors over one year to October, compared with the sector average of -3.7%. Brazier and Wright have both been underperforming, returning -4.1% and -3.5% to investors, respectively.
In fixed income, though the portfolio is underweight government bonds, Champion says the team increased its allocation to corporate bonds.
‘What we have done more recently is look at beginning to take a bit of equity risk down,’ he says. ‘We did this, I hasten to say, well before the more recent lows.
‘We took some absolute return style equity funds down into global convertible bond funds for some downside protection.
‘We still think the cycle has got further to go,’ adds Champion. ‘Although we like the idea of equity risk and we remain overweight, we want to start scaling back the risk in that space.’
He highlighted the Angel Oak bond fund as having done well in this space, while a recent addition to the portfolio has been the Aviva Investors Global Convertibles fund. The Balanced portfolio now has 4.8% in convertible bonds.