Between Q3 2016 and mid-way through Q3 2017, the wealth manager dropped the biggest fund on its buy-list, Woodford’s £7.9bn equity income fund, entirely from its defensive, growth and adventurous portfolios, which had held 3%, 7% and 8% in the fund, respectively.
Woodford’s flagship equity fund comprised 2% of LGT Vestra’s cautious and balanced mandates come August 2017, falling from its 5% and 3% positions.
Over the 12-month period in question, Woodford adopted an increasingly contrarian position on the prospects for the UK economy, backing many cyclical stocks like the housebuilders and major retail banks.
Similarly, Trojan Income was axed from all five of LGT Vestra’s core MPS strategies, with the exception of the strategic income mandate where it remained fixed at 6%. At the end of the third quarter in 2016, the £3.34bn Trojan Income fund made up 4% of LGT Vestra’s defensive, growth and adventurous funds and 5% of the cautious and balanced funds.
The Marlborough Multi Cap Income and Liontrust Special Situations funds were also noticeably reduced over the period. The £1.6bn Marlborough fund was taken out of the three core MPS portfolios it previously appeared in and only remained in the strategic income portfolio (4%). Meanwhile, the Anthony Cross and Julian Fosh-run Liontrust fund disappeared from its growth and adventurous funds and fell from a 5% to 3% weighting in LGT Vestra’s cautious fund.
The cuts are part of a wider move away from the UK economy, which the group views as an “increasingly difficult market environment” thanks to cost-push inflation from weak sterling, an expected hike in the cost of borrowing and potential complications for corporates from reduced migration post-Brexit.
It has whittled down its UK equity exposure across its five core strategies – defensive, cautious, balanced, growth and adventurous – and its strategic income mandate, from 50% to 30% of the overall equity allocation in the past 24 months.
“With Great Britain in flux and heading towards a period of monumental transition, aside from the companies producing revenue overseas, we don’t see much opportunity in the UK compared with the rest of the world,” the wealth manager said in its MPS third quarter review.
Stock specific issues
Looking back at portfolio performance over the period, the group highlighted Woodford’s fund, Threadneedle UK Equity and Trojan Income as poor performers during the period. All three “suffered stock specific issues”, LGT Vestra said, with Provident Financial causing problems for both Woodford’s and Trojan’s equity income funds.
While the wealth manager sold out of Trojan Income across its five core strategies before Provident Financial issued its first profit warning, following “some alpha analysis on the fund versus peers”, it has not ditched Woodford completely.
“We continue to hold Woodford in the cautious and balanced portfolios for now whilst our in-house fund research team do further analysis on his process,” it said.
However, LGT Vestra didn’t give all of the UK equity funds on its buy-list the chop. During the year in question, it added to its holdings in both the Schroder Income fund and the Lindsell Train UK Equity fund.
The Schroder Income fund, which previously only appeared in the balanced fund, was a constituent of each of the five MPS strategies by the middle of Q3 2017. And Nick Train’s equity fund was as high as 8% and 9% in its riskier growth and adventurous strategies, up from 5% and 7%, respectively, 12 months before.
Despite the strong performance from risk assets outside the UK, LGT Vestra said the best returns came from its absolute return investments.
The JPM Global Macro Opps fund, which was highlighted last week for having one of the biggest discrepancies between ongoing charges figure (OCF) and actual cost of ownership, was one of the key drivers of positive performance, up 7.9% over the quarter. Old Mutual’s Global Equity Absolute Return fund (GEARS) which LGT Vestra said is “becoming a stalwart of the portfolios” was also up 5%.
Portfolio Adviser asked Woodford Investment Management, Marlborough Fund Managers and Troy Asset Management for comment, but they declined. Liontrust Asset Management could not be reached for comment.
