Emma Wall: Hello, and welcome to the Morningstar Series, "Why Should I Invest With You?" I'm Emma Wall and I'm here today with Tom Yeowart, Manager of the Troy Spectrum Fund.
Hello.
Tom Yeowart: Hi.
Wall: So, you've recently been adding to your equity portion of the portfolio despite still having a cautious stance on markets on the whole. What led to that decision?
Yeowart: Sure. So, let me explain why I am cautious, what I have been adding to, and why. I think whenever you get a sort of lurch down in equity markets. We saw it in the fourth quarter of last year it does throw up interesting opportunities. And my enthusiasm is tempted to a certain extent, by the fact that I think we are closer to the end of this market and economic cycle than we are to the beginning.
I am worried about the level of corporate debts in the U.S., the deterioration in the quality of that debt and the fact that after decade of very easy monetary conditions and the likelihood that there's been a big misallocation of capital, is probably fairly high.
So, as we move into environment of quantitative tightening monetary conditions getting obviously tighter and the operational and funding environment for a lot of companies is becoming tougher. So, I think, we are moving into a time when you should be cautious and as a fund selector or an equity investor you need to be increasingly selective and discerning. Having said that, on the one hand, valuations have fallen.
So, if you are selective and discerning, there are opportunities. So, what have I been doing? Well, first and foremost, I have been adding to the funds and investment trusts I have the most conviction in and where the valuations have fallen the most.
So, a good example is the Aurora Investment Trust. It's a small investment trust managed by Phoenix Asset Management. it's got a focus on U.K. companies with a lot of domestic exposure. So, owning companies like Lloyds, SportsDirect. And frankly, in December of last year, we got to a point where valuations were what the manager thought to be extremely attractive levels. So, I have no idea like most people what the end result of Brexit will be, but I think if you are a long term investor, we did reach a point where valuations were attractive.
Wall: You say that that although there has been this pullback and there are some value opportunities that are being thrown up, but you do still remain cautious and you do we think we are at the end of the cycle. Does that mean that you are staying nimble that you are taking some gains from some places in order to sort of guard against that downturn when it comes?
Yeowart: Yeah. So, overall, I have been adding to certain things, but I have also been reducing certain funds and overall, the equity exposure hasn't changed an awful lot. I have just been – I have been allocating to where I see value. But because of my more general caution I don't think now is the time to get overly excited. So, you are right that there have been elements in the portfolio which I have been reducing.
The one thing I'd say about a quarter like the fourth quarter in 2018 it really sharpens your focus on where in the portfolio you have real conviction and where perhaps you don't have so much. So, I try to sort of add to where – the areas of real conviction and I am being reducing the areas where I have got less conviction.
Wall: And what about cash holdings, because presumably when this downturn comes that will throw up even more opportunities than we saw in the fourth quarter last year?
Yeowart: Yes. So, my portfolio is fairly diversified. I have got broadly 70% in what I consider to be long-only equity funds and 30% in a combination of cash, inflation-linked bonds, a bit of gold. So, the cash element is important. It acts as an important dry powder to allocate to opportunities when they arise. And saying that also my underlying managers sometimes hold cash.
So, Findlay Park America had 15% cash in the fourth quarter. That's slightly come down to 10% to 11%. So, there is an element in the portfolio which is dynamic and the cash weightings in my underlying funds will fluctuate as well depending on the opportunity set.
Wall: Tom, thank you very much.
Yeowart: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
