Interactive Investor

Leaders, laggards and switches: Model Portfolio July 2014 update

8th July 2014 10:55

Helen Pridham from interactive investor

Leading income holding - Newton Asian Income

After suffering a performance slump in 2013, Newton Asian Income has bounced back again this year. It is included in the Growing Income, Higher Risk portfolio. Managed by Jason Pidcock, the fund has an impressive long-term record but it suffered a setback last year as investors got jittery about the impact on the Asian economies of the ending of quantitative easing in the US and increasing interest rates.

Since December markets have returned to normal and the fund has benefited as investors have started looking for value in the Asia Pacific region again as developed markets have become fully priced.

Click here to view the constituents and factsheets of all 12 Money Observer Model Portfolios.

To find out why our income-oriented model portfolios made the best progress over the last quarter, read: Income-oriented model portfolios lead growth versions.

Leading growth holding - JPMorgan Global Emerging Markets Income IT

JPMorgan Global Emerging Markets Income IT was added to the higher-risk versions of the Medium Term Growth and Longer Term Growth portfolios last quarter. Since then it has been the best performer across all our portfolios. Although it has an income objective, the managers are also aiming to produce growth and investors who do not want the income can opt for reinvestment of dividends.

Lagging income holding - Unicorn UK Income

Unicorn UK Income has featured several times as our leading income holding and it is still our best-performing holding for the period since the model portfolios were constructed at the beginning of 2012 with a gain of 86%.

But over the last quarter it has dropped to the bottom of the pack due to its exposure to small and medium-sized companies, which have fallen from favour recently. During this period, the unexpected death of its well-known manager John McClure was also announced.

However, Unicorn Asset Management has emphasised its team-based approach to investment management and the fact that McClure's co-managers Simon Moon and Fraser Mackersie had worked with him on the fund since 2008 has reassured us. We are therefore happy to continue to hold it in the higher-risk versions of the Balanced Income and Growing Income portfolios for the time being.

Lagging growth holding - Herald IT

Herald IT is held in the Longer Term Growth, Higher Risk portfolio. It invests globally in smaller quoted companies in the technology, media and telecommunications sector although currently around two thirds of the portfolio is invested in the UK.

Portfolio switch: Artemis Strategic Assets

Artemis Strategic Assets was held in two of our medium-risk growth portfolios - Short Term Growth and Medium Term Growth. It has been included since inception but it has proved to be one of our more disappointing holdings. It invests in a spread of different assets so we did not expect it to be a top performer but it has not made the positive progress we expected either.

For the Short-Term Growth, Medium Risk portfolio we have therefore decided to switch to Premier Defensive Growth. For Medium Term Growth, Medium Risk we have chosen Ecclesiastical UK Equity Growth. Both the new funds were prize winners in the recent Money Observer Annual Fund Awards.

For the shorter-term portfolio, we felt it was still important to have a holding with the potential for providing low-risk steady growth. Premier Defensive Growth was set up in December 2010 and is managed by Paul Smith who has been very successful in generating positive returns on a rolling 12-month basis. To achieve this goal, he focuses on investments with a fixed return and/or a fixed life. Currently many of the fund's major holdings are zero-dividend preference shares issued by investment trusts.

For the Medium Term Growth portfolio, we decided a somewhat higher-risk approach is likely to be more rewarding in the current climate. We opted for Ecclesiastical UK Equity Growth to bolster the portfolio's exposure to UK equities. Managed by Andrew Jackson, the fund is typically around 50% invested in large UK companies with the reminder in small and medium-sized businesses.

Although the fund has benefited in recent years from its exposure to more cyclical companies, Jackson is pragmatic and has recently been increasing his holdings in larger defensive growth stocks.