Coombs has been selling down fixed income holdings in his portfolios of late and is now down to a single bond fund holding. "Two years ago, the Total Return Portfolio had 34% in fixed income corporate bonds. Today we have less than 3%,” he says.
The portfolio breakdown shows an 18.8% exposure to corporate bonds as at 31 May, but Coombs says 15 of these percentage points are in the form of floating rate notes or callable bonds with less than one year to maturity.
The remaining fixed income holding is Richard Hodges’ £1.6bn L&G Dynamic Bond Trust: Coombs says he is "slightly uncomfortable" with Hodges’ decision to move the fund’s high yield weighting up to 50% but is trusting in the manager’s abilities.
"I am uncomfortable with the high yield holding, so it’s a leap of faith on my part, but Richard is a very sophisticated investor who is capable of using the full range of duration positions and other tools available to him"," he says.
Coombs’ Total Return Portfolio currently has a near-30% allocation to equities, the highest such proportion in its history. That is entirely derived from globally-focused equity income strategies, says Coombs, who believes high quality companies will help provide a defensive quality to his portfolio over the cycle.
Coombs has reduced commodities exposure in the past few days and while he says he is not a gold bug, he remains positive on the prospects for gold given its "flight to quality" attributes.
“The only commodity exposure we have at the moment is to gold, which may seem strange given that gold is at $1,500," he acknowledges.
“Most people would say that gold and the dollar are inversely correlated, we think over the next 6-9 months they will become more correlated as investors look for defensive asset classes given the increased turmoil in Europe. We are holding both gold and dollar assets in order to smooth volatility and hit our targets.”
Coombs has exposure to gold via the ETF Securities Physical Gold ETF, which counts for 3% of his Total Return and his Strategic Growth portfolios. He is looking to increase this weighting to 4% in either fund, but has struggled to find appropriate holdings in other commodities.
“We’d love to have had exposure to oil of late but the tracking error between oil ETFs and the spot price is far too high for us to be able to monitor the risk appropriately", he says.
