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THE PORTFOLIO REVIEW
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THE INVESTOR
Portfoliooverviews
THE INVESTOR CENTRE
Spring 2017
T
he Balanced Income
Portfolio’s higher exposure
to equities proved a valuable
trait over the period,
enabling the medium-risk strategy to
beat the performance recorded in the
final quarter of 2016.
NeilWoodford’s UK High Income
fund provided the ultimate turnaround
story, as the worst-performing fund in
the Portfolio during 2016 finished at
the head of the pack over the quarter.
Healthcare, a long-time favoured
sector, and specifically holdings in
GlaxoSmithKline,AstraZeneca, Roche
andAbbVie, bounced followingTrump’s
defeat over changes to the US healthcare
system.Another long-term theme,
tobacco, was also a key contributor;
top-10 holdings BritishAmerican
Tobacco and Imperial Brands did well.
In addition, avoiding the energy sector
proved a successful tactic and helped
relative performance.
A strict valuation discipline has seen
cash levels in the Equity Income fund
reach nearly 20% in recent months. But
against an equity market which seems to
be on an ever-upwards trajectory, this
has seen relative performance suffer.
The fund, managed by RWC Partners,
was the lowest-performing equity
income strategy in the Portfolio over the
quarter. Furthermore, stock selection
slight weakening in high-yield markets
towards the end of the quarter as several
factors created some headwinds. Rising
USTreasury yields ahead of further Fed
rate hikes, the setback for oil prices
amidst a glut of supply, and a record new
issue calendar, all created challenges.
JimWiant, Lead Portfolio Manager
at MidOcean, believes this creates
opportunity for long-term investors:
‘As this volatility continues, either as
a function of higher rates, commodity
swings or geopolitical concerns,
we stand ready to capitalise on the
dislocation by adding to existing quality
credits at lower prices.’
The Property fund was broadly flat
over the period, as investors continue to
sit and wait for a better understanding
of what the UK’s decision to leave the
European Union means for the occupier
market (particularly in London).
Portfolio Manager John Humberstone
of Orchard Street recently commented:
‘Notwithstanding Brexit and other
uncertainties that lie ahead, the portfolio
is well-placed to continue to deliver
a sustainable income stream.’ Investment
volumes in the UK commercial
property market remain muted in
comparison to recent years, which
seems to be more due to a lack of sellers
rather than a lack of demand. Higher
cash levels have been a drag on fund
performance lately, but the teamwas
successful in putting some of those
cash reserves to work during the quarter
BALANCED INCOME
and completed deals for assets in
Wandsworth, Reading and Christchurch.
The laggards could be best described
as the likely suspects given the move
towards a more risk-on environment:
while still achieving a positive return,
the Gilts, Investment Grade Corporate
Bond and International Corporate Bond
funds trailed behind their riskier peers.
Investment
volumes in the
UK commercial
property market
remain muted
in comparison
to recent years,
which seems to
be more due to
a lack of sellers
rather than a
lack of demand