In common with many investors, Andrew Summers, head of fund research at Investec Wealth and Investment, has a dilemma: the group has a quality bias, believing that its private clients in general prefer the stability and predictability of investing in sound, well-run companies with little debt and predictable dividends, but he admits that these stocks are now ‘priced for perfection’ in a world that has seen nervous investors stick to safe haven assets.
“Philosophically, we have a quality bias,” he says. “We believe it is what private clients want and they could certainly outperform more cyclical equities during a sell-off. In the long-run we believe quality provides solid returns with less risk. However, we recognise they have done very well.”
While a sell-off in equity markets remains a possibility, it is by no means assured and Summers is reluctant to be over-exposed to expensive quality stocks just in case. As such, the group has been adapting its focus on quality since the start of the year.
He says: “We are encouraging our investment managers to make sure they have some ballast in their equity positioning. They need to have some cyclical and value funds. Value may outperform on a medium term basis.
"We are mindful that investment managers have the right amount of cyclically-dependent investments in the current environment.”
This means incorporating ‘value’ options for the group’s investment managers, such as Ben Whitmore’s £1.5bn Jupiter UK Special Situations fund, or Alastair Mundy’s Temple Bar investment trust or Investec Asset Management’s £1.1bn UK Special Situations fund.
In its global exposure, the group’s approach has been to take a blend of high quality and cyclical exposure in more cyclical markets.
For example, it is strongly overweight in Continental Europe in client portfolios, where they see an economic recovery. It is backing this through funds such as the Neptune European Opportunities fund.
The group is also overweight Japan, which is a play on globe trade. Both the more ‘value’ GLG’s Core Japan Alpha fund and the growth-focused Baillie Gifford Japan are among its favoured holdings.
Investec Wealth’s portfolios are also overweight in Asia, another relatively high beta market. However, Summers adds: “Even within these more cyclical markets, overall, we have a quality bias. We are aiming to incorporate both.”