Speaking to Portfolio Adviser on Tuesday, Morningstar portfolio manager Mark Preskett revealed a reduction in its holding of the Baillie Gifford High Yield Bond Fund, down by 2% to a holding of 4% in its Moderately Cautious Income portfolio and 4.5% in its Moderate income portfolio.
Stressing it was less a concern about the fund itself, more a change in asset class conviction, Preskett explained a tightening of spreads in high yield had prompted the increased holding in emerging markets, up to 8.5% and 9.5% in the two respective portfolios.
He said: “In our view emerging market is offering better long-term returns. They have suffered from out flows and the Trump effect, and there’s the idea that the emerging markets will suffer from protectionist policies but from a valuation point of view they are offering good value and nice yields, as an investor it’s a good area.”
However, Preskett admits Morningstar are having to rely on L&G index trackers for both hard and local currency having “thrown in the towel” at the challenge of finding active managers with demonstrable good records in the sector and have been “forced to go down the UK OEIC route”.
Noting Neuberger Berman and Colchester as two of the better managers out there, Preskett said: “A lot of the other fund managers trade too much and go too much with news flow.”
Tracker funds have so far seemed to follow the index closer than any active manager has shown, Preskett added, and although there are worries about representation and tracking error, the risk can be somewhat lessened by using ‘big shop’ trackers such as L&G.
