‘Barbell' strategy boosts Stewardship International performance

A ‘barbell' investment strategy has helped F&C's Stewardship International fund to achieve a relatively strong start to 2009, according to manager Terry Coles.

The strategy combines an overweight to defensive consumer staples and healthcare stocks whilst maintaining exposure to cyclical sectors such as oil & gas and industrials. The Fund has significantly outperformed against its MSCI World Index benchmark by 6.4% so far in 2009.

"Over the past few months we have reduced our underweight to the US, and significantly lowered the fund's exposure to emerging markets which have performed very strongly so far this year." Coles explained. "Having led the world into recession, we expect the US to be the first to emerge from the current economic and financial crisis but this will take some time to play out."

A major contributor to the fund's performance this year has been its position in FTI Consulting, a US based consultant that provides corporate restructuring services. The challenging financial environment continues to drive demand for the company's services, as highly leveraged companies seek advice on how to repair their balance sheets and as others file for bankruptcy.

An underweight exposure to financials was also a driver of performance, as the sector has remained under pressure so far in 2009. Financials fell by around 19% in February, following news that the US government would take a larger equity stake in Citigroup.

Coles believes that areas such as alternative energy will also continue to face headwinds amidst the current economic turmoil, and that industry sales growth is likely to be constrained over the near term due to a lack of credit availability. To reflect this view, the fund has decreased its exposure to the solar sector, and now only holds two stocks, SunPower and SMA Solar which both have better than average visibility.

Regarding the outlook Coles concludes, "Although consensus earnings estimates for some sectors such as energy and materials have become more realistic, earnings growth expectations for the market as a whole appear too high and we expect forecasts particularly within financials to be revised lower throughout 2009."

"We remain cautious on global markets for the time being, but continue to monitor leading economic indicators for signs of improvement that would prompt us to reduce our defensive positioning and increase the cyclical part of the barbell strategy."