Fund manager Gary Waite drops Aviva AIMS allocation but remains positive on US holdings.
Walker Crips portfolio manager Gary Waite (pictured) is sticking by his 17.7% US exposure, despite the rough ride the country’s stock market experienced in October.
In particular, last month’s losses hurt the technology holdings in the Walker Crips Alpha: r2 Balanced portfolio.
‘With the sell off, [our] US holdings, particularly our technology holdings, hurt somewhat because that was what got sold down most aggressively,’ Waite says.
The Janus Henderson Global Technology fund, run by Graeme Clark, Richard Clode and Alison Porter, and the Vanguard tracker Waite holds, bore the brunt of the sell-off.
‘The tracker and the Henderson fund in particular got hit. Leading technology stocks are the prime driver of the US stock market. If they do well, the index does well, and vice versa.’
The Henderson fund has a particularly high exposure to US technology, with 82% in the fund compared with 74% in the index. This contributed to it falling 10.9% in October, compared with the 7.6% decline in the global tech index
Although Waite is retaining his US exposure, the same cannot be said for the AIMS Target Income fund, which had 4% allocated to it.
‘We sold out of the Aviva AIMS fund recently because it is expensive and has performed poorly,’ he says. ‘It is not doing what it says on the tin.
‘Our alternatives positions provide a specific function in the portfolio – you want something to give you that chance at alpha. The AIMS fund has consistently underperformed and it has had a big change of management. So we think there was not a compelling reason to hold it and there were a few compelling reasons to exit.’
Waite is referring to a wave of change within Aviva Investors’ multi-asset team, which resulted in six managers joining and three exiting.
Aviva restructured its multi-asset team in June, integrating its global rates and emerging market debt teams alongside other asset class specialists under the banner of multi-asset and macro. The shakeup also included a number of internal moves. James McAlevey, senior portfolio manager on AIMS Fixed Income, was promoted to head of rates and also became a named manager on the AIMS Target Return fund.
Although Waite has sold out of the Aviva fund and dropped his small holding in Standard Life Aberdeen’s Global Absolute Return Strategies (Gars), he has added the Jupiter Absolute Return fund, run by James Clunie, in order to include a more defensively minded fund in the portfolio.
He has also added the Natixis H20 MultiReturns fund, which he says ‘has a very good long-term track record, but is extremely volatile’.
‘When the market is going up, that fund can be going up the same or it can be down twice as much, but we don’t mind that because it’s in the portfolio to give us that uncorrelated return.’
The fund had been the best performer in the portfolio in September, gaining 6.2% following a poor July. ‘There is never a dull moment with that fund, so we are using it in the portfolio almost as a balance, as an asset that will do something that is not trending with everything else.’
Alternative to absolute return
Waite is turning more and more to funds like this Natixis one, which has 2% allocated to it as he feels many of the industry’s absolute return strategies, such as Gars, charge high fees for what amounts to very little performance.
‘It is natural for alternatives funds to lag, because they have hedged positions and they are absolute return by name and definition. But often when the market goes down, they go down, and when the market goes up, they don’t go up as much as the market.’
Waite has added Charles Montanaro’s Montanaro UK Income fund to the portfolio to round out his UK equity exposure.
‘We have been looking at it for a long time. It is a very good complement to our existing holdings in the UK equity income space, because it focuses on small and mid-cap companies,’ he says.
This balances his holdings in perennial favourite Threadneedle UK Equity Income and JO Hambro UK Equity Income, both of which have large-cap biases, as well as a small holding in the Woodford Equity Income fund.
‘The Montanaro fund is a good addition to that UK income space, because it has quite a healthy yield of 3.4%, and also capital performance has been very good, so we’ve added to that in the past few days across all the models,’ he adds.