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8th May 2015

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David Coombs, manager of the Elite Rated Rathbone Strategic Growth Portfolio, shares his views on markets and tells us why he feels more like an old fashioned balanced fund manager than a multi-asset investor right now.


I'm not keen on bonds. Corporate bonds especially make me nervous – both investment grade and high yield – so I have no exposure here. I'm not worried that companies will default on their payments, more that there is a huge lack of liquidity in the market.

Instead, I have been buying a small amount of gilts. Yields are up again this week and I've been adding to them on the weakness. I've had zero holdings here for some time, which is a big call, so I'm using pound cost averaging to gain a small holding. This should help the portfolio if markets have a wobble over the summer. If the 10-year gilt yield got to 2.5%, I would be a more aggressive buyer, as I see interest rates peaking at 1.5% this cycle.

Commercial property

The portfolio has no open-ended bricks and mortar exposure at all. I think the asset class looks pricey and some funds are struggling to source quality properties, which is not an encouraging sign.


I don't have any exposure to commodities either. Indeed, I am a long-term bear on the asset class. Gold doesn't appeal because the cost of owning it is rising. We've done a lot of analysis lately looking at it as an inflation hedge, and the data just doesn't stack up unless you have hyper-inflation. So I really don't see the point in owning it. When it comes to industrial metals, the growth needed to support this area doesn't seem to be there.

I've been bearish on oil since mid 2013, but for the wrong reasons! I felt that if Iran came back on line we might see supply outstrip demand. As it turns out, the oil price did fall, but for other reasons. I didn't think it would fall as far as it has though, so I've recently bought a Mexican ETF as a hedge on the oil price rebounding (Mexico is a big oil producer). I'm also overweight Japan, which is a beneficiary of a lower oil price, so on aggregate I've got a neutral position.


The EU referendum outcome will now hang over sterling for the next two years. This is a source of potential volatility. Given the UK is not part of the euro, it is difficult to judge if EU withdrawal is negative or positive in the very long-term at this stage.


I'm overweight equities as there is simply no other game in town. They are not great value – most markets are expensive – but on a five-year time horizon they are still the place to be. I think growth, especially visible growth, will reward. I'm favouring technology and healthcare in this respect.

When it comes to geographies, the fund has been overweight US equities for two years now and I'm maintaining that position. In the UK, I have been increasing large caps over small and mid.

In Europe, I own an actively-managed German fund and a passive Spanish fund, which I bought as I thought the market would get excited about Draghi's quantitative easing. Greece isn't an issue in my view – there is hardly any external debt held so, while markets might dip on a 'Grexit', they would soon recover.

My biggest change has been to Japan, where I have doubled my exposure this year. I was very sceptical about Abe's three arrows, but there is growing evidence of improved corporate governance, which cannot be ignored. Valuations are compelling and the Bank of Japan will stay very accommodative.

I'm not so keen on emerging markets and am avoiding generalist global emerging markets funds in favour of country-specific holdings. I think China will beat expectations - not with 8%+ growth suddenly, but I think the economy is robust enough to survive lower growth and will get support from the government. I also hold an Indian Investment Trust, Eastern European fund and the Mexican ETF I mentioned earlier.

Other assets

I own a couple of long/short equity, market neutral and global macro funds. Long/short equity hasn't been a good strategy for a while but, given market valuations, I think it makes sense now. Amongst my holdings is Elite Rated Henderson UK Absolute Return.

As you can tell from my asset allocation, it's tough at the moment. There are huge amounts of risk in markets and only modest returns to be found. I'm not keen on many asset classes and am sticking to just one or two. Yes, a multi-asset manager has a lot of tools at their disposal, but I don't think it is wrong to acknowledge that those tools just aren't working at the moment. There are always opportunities to be found, but it feels right to me at the moment to have the portfolio positioned more like the traditional balanced managed fund with just exposure to equities and some sovereign bonds, rather than investing across the asset range for the sake of it.

More information on this fund can be found on the FundCalibre fact sheet here.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. David's views are his own and do not constitute financial advice.