Steven Rooke, portfolio manager at Cazenove Capital Management, gives us an insight into its model portfolio service and talks adapting multi-asset to market conditions.
'Cazenove Capital launched its model portfolio service (MPS) at the start of July 2016, initially with five risk-rated models (distribution technology rated 3 – 7) plus an income option. These follow our multi-asset approach – investing in equities, bonds, property, targeted absolute return funds, infrastructure and commodities – in order to deliver strong, long-term risk adjusted returns. We utilise both active and passive strategies, including open ended funds, ETFs and investment trusts, with the view that every investment decision is an active one. Having listened to adviser demand, we subsequently launched five lower cost active/passive models (DT rated 3 – 7) in July 2017.
We rebalance the models on an ad hoc basis, preferring to do so when we believe it is appropriate given market conditions, rather than forcibly doing so on a set date. Recent rebalances have been prompted by us wanting to increase our exposure to technology, taking profits from property and adding to Japan.
Over the summer we increased our weighting to technology, having analysed the models on a look-through basis. We wanted additional exposure to this high growth long-term theme, with tech companies continuing to be innovative and disruptive to more traditional companies and sectors. We preferred to use an active manager (T. Rowe Global Technology Equity fund) given the specialist nature of the sector where the pace of change means that constant oversight is key.
In November, we took profits on the TR Property investment trust following a strong run in performance after the referendum, which hit the property sector particularly hard. The share price had moved from a 20% discount to net asset value, down to just 4%, so we locked in some gains from an asset class that could be weighed down by protracted Brexit negotiations. We used the proceeds to add to the Architas Diversified Real Assets fund. It is difficult to replicate alternative asset classes passively, so we opted for the actively managed Architas fund which has a flexible mandate (investing in areas such as infrastructure, specialist insurance and asset backed securities) and where the fundamental drivers of returns differs from more traditional investments, such as equity and bonds.
We recently added to our Japan exposure as we are more optimistic about the region as earnings growth comes through. Valuations look attractive relative to other equity markets as the Bank of Japan continues its quantitative easing policy. Having already held the GLG Japan Core Alpha fund, which has a large cap value tilt, we opted to add to our market exposure via a passive fund for both cost and to neutralise some of the style bias.
Since launch (1st July 2016) the performance of the Cazenove Capital MPS Balanced model (DT 4) up to the end of September is +13.7%, with the Cazenove Capital MPS Growth model (DT 5) up 17.5%.
The one-year numbers up to the end of September are MPS Balanced (DT 4) +7.54% and MPS Growth (DT 5) +9.9%.'
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