Keeping you in the loop – Investment Changes

An important part of our ongoing service to clients is our active, in-house investment management. Although you receive a number of our investment communications, until you’re a client you are not privy to the review of portfolios, decisions taken and actual changes made. We thought this may be of interest to you and are therefore going to bring you up to date with the adjustments we have made in the last few weeks.

Initially our main focus has been in our lower risk portfolios, where we have been seeking some alternatives to Bonds, just to dampen down the potential capital risks in bond markets.

The changes made have been to sell Fidelity Global Inflation Linked Bond and Kames High Yield and replace them with Polar Global Convertibles and 24 Dynamic bond. Below is our reasoning for these changes. It is likely that we will also make some changes to our higher risk portfolios in the next few weeks and I will update you when we do.

“We have outlined on several occasions that we need to keep our bond holdings under review against the background that interest rates will start rising gently over the next 12-18 months. We have been gradually reducing our exposure to bond funds and are now looking to reduce this further.

Although we still see some risks to inflation, we feel we can use the assets better elsewhere for now. We therefore recommend a switch out of the Fidelity Global Inflation Linked Bond fund, which has contributed very little in the way of performance, to a fund investing in convertible bonds.

This sector has some defensive qualities in the event of weaker stock markets but if we expect markets to remain well supported, there will be some greater upside in this sector beyond what we could expect from bonds. There are not many funds in this sector, but the one we like best is run by a specialist group called Polar Capital.

The fund is relatively small at $75 million but is growing. It is still small enough to be quite active without some of the risks associated with these funds such as market liquidity, which is much less since the banks have curtailed their trading activities in these markets.

We have also researched what we might put in place that will limit the changes in the asset allocation to the bond sector but will be invested in a different class of assets to the other funds we own.

There is a highly talented group of purely bond managers who have impressed us both with their process and the holdings they have. TwentyFour Asset Management, trading as 24, are not widely known outside the professional investment community where they have quickly established a very good reputation as managers of these assets.

This holding will reduce the nature of the investments we own but will not change the asset allocation and we believe they will continue to add value with their specialist knowledge of these markets.

We recommend a switch from the Kames High Yield Bond fund, which has done well over the past 24 months to the TwentyFour Dynamic Bond Fund which will be more active across the sector investments.”

Our portfolios continue to beat their benchmarks this year and we feel they are well positioned. If you would like more information, then please contact us.