Hawksmoor warms to UK equities after ‘small mea culpa’

Citywire A-rated Hawksmoor pair Ben Conway and Daniel Lockyer have told investors their portfolios are performing well given near double digit inflation and the perils of a bear market.

Hawksmoor multi-asset fund managers Ben Conway and Daniel Lockyer have told investors they are excited about opportunities in UK equities as they hope to make up for underperformance last quarter. 

In an ‘extremely rare’ occurrence since launch in 2009, their flagship £233m Vanbrugh   fund fell behind its consumer price index (CPI) benchmark, which it aims to beat over three-year rolling periods, as inflation soared to 9.4% in June.

That was the result of being ‘too forgiving’ to strong performers, the Citywire A-rated pair said in a webinar last week, after gold investments, which they sought refuge in last quarter, turned sour. 

In the three months to the end of June, the Jupiter Gold & Silver  fund, which made up 2.1% of Vanbrugh’s total assets, fell 22.2% and the Ninety One Global Gold  fund, a 1.8% position, dropped 20.8% as bullion prices slipped. 

Hawksmoor’s Vanbrugh fund and similar £141m Distribution fund fell 4.6% and 5.2% respectively over the quarter, while the racier £39m Global Opportunities lost 7.8%, according to June factsheets.

‘I think maybe we were a little bit too forgiving when those particular investments performed very well and we could have taken a little bit more money off the table than we actually did. A small mea culpa there,’ Conway (pictured below) said.

The pair saw opportunity in the Man GLG Income fund, where the UK income portfolio is trading cheaply and at similar levels to when it launched in 2012, with a price-to-earnings (PE) ratio of nine times and yielding about 6%.

They also like the look of the Octopus UK Multi Cap Income  fund, a quality growth portfolio that has derated, they said. The managers see further potential in Allianz UK listed Opportunities and Polar UK Value Opportunities .

The bump in performance has not dented investor confidence as the Vanbrugh fund recorded inflows of £6.7m over the quarter, according to Morningstar. The income-focused Distribution fund recorded net flows of £2m and the Global Opportunies fund took in £1.3m.

In the three years to end of July, Vanbrugh delivered a 10.2% return for investors versus the 4.6% average in the Investment Association Mixed Investment 20-60% Shares sector, according to the factsheet.

Vanbrugh fund buys and sells 

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New positions Full sales
Allianz UK listed Opps Allianz Strategic Bond
Man GLG High Yield Opps Angel Oak Multi-Strategy Income
NextEnergy Solar (NESF ) Ashoka India Opps
Pacific North of South EM Income Opps  Chrysalis Investments (CHRY )
  Muzinich Asia Credit Opps
  Polar Capital Global Convertibles (GBP Hedged)
  Supermarket Income Reit (SUPR )

Source: Hawksmoor

Looking to private equity, Conway said long-time bet Oakley Capital Investments (OCI ), which is held in the Vanbrugh and Distribution potfolios, was a ‘fantastic opportunity’. 

He said the management of the underlying portfolio was strong and the board bought back shares ‘at one of the fastest paces in the entire sector’ to narrow the discount between share price and net asset value (NAV). The discount is currently 35%, according to Numis Securities.  

Alternative investments once again proved to be solid choices. Battery storage trusts, Gresham House Energy Storage (GRID ) and Gore Street Energy Storage (GORE ), which held a combined 2.9% portfolio weighting, were strong contributors, gaining 26.3% and 10.3% over the quarter, respectively.

Distribution fund changes 

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New positions Full sales
Allianz UK Listed Opps AEW UK Reit (AEWU )
NextEnergy Solar Muzinich Asia Credit Opps (GBP Hedged)
Pacific North of South EM Income Opps Supermarket Income Reit
Schroder Strategic Credit  

Source: Hawksmoor

Lockyer told investors they were continuing to increase corporate bond exposure in their portfolios after they felt ‘encouraged enough about valuations’. 

At the end of June, the corporate bond weighting in the Vanbrugh fund was 19%, according to Morningstar data. The weighting sat at 7.4% in the Distribution fund and there was no exposure in the Global Opportunities fund.

‘It is really encouraging to see that weighting in corporate bonds tick up because it’s been a very long time since we felt encouraged enough about valuations in the most liquid part of fixed income to start increasing exposure,’ Conway said. 

Global Opps fund buys and sells 

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New positions Full sales
Allianz UK Listed Opportunities Chrysalis Investments
NextEnergy Solar NextEnergy Solar
Pacific North of South EM Debt Opps Round Hill Music Royalty (RHM )

Source: Hawksmoor

In the go-anywhere Global Opportunities fund, the pair noted they had bought and sold NextEnergy Solar during the quarter ahead of the release of a net asset value (NAV) update, which analysis showed would be materially higher though the market was failing to price that in.

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