- Stephen Payne is more cautious than he used to be – he's invested the fund to reflect this view
- A focus on UK companies has held back recent performance
- He thinks there's lots of value stored up in the UK market at the moment though
Stephen Payne has run the Janus Henderson Cautious Managed Fund since 2016. He started as co-manager and later became the fund's lead manager in early 2018.
We recently met him for an update. We're encouraged to hear he uses the same investment philosophy as the previous fund manager, who had a long and successful track record.
We think Payne is a sensible investor and this fund is a reasonable choice in the IA Mixed Investment 20-60% Shares sector. The shares part of the fund offers the potential for long-term growth and is currently the main source of income. The portion invested in bonds should help limit volatility, and also provide some income.
This fund isn't currently on the Wealth 50 though. We prefer managers that have added value for investors over the long term. We don't think the manager has a long enough track record at the moment, but we'll continue to follow his progress.
Time to be cautious?
Stephen Payne is more cautious than when we met him a year ago. Some of the data he tracks suggests economic growth is slowing. For example, manufacturing in Europe is reducing, consumer confidence in the US is lower, and Brexit has caused all sorts of uncertainty in the UK. He also thinks company earnings growth is more subdued.
Shares are perceived to be riskier in times of uncertainty, so Payne's reduced this part of the fund from almost 60% last year to around 50%. He's also reduced investments in higher-risk, high yield bonds and bonds issued by financial companies.
He's increased the amount held as cash, currently 12%, which could provide some shelter when markets fall. Investments in bonds have also gone up. 12% of the fund is now invested in US inflation-linked government bonds. They're generally seen as less risky than shares, and their value rises in line with inflation. So they could help performance if inflation picks up.
Potential for a turnaround?
The fund hasn't performed quite as well as the average fund in its sector under Stephen Payne's management. This is over a short timeframe though and past performance isn't a guide to future returns.
|Annual percentage growth|
Feb 14 -
Feb 15 -
Feb 16 -
Feb 17 -
Feb 18 -
|Janus Henderson Cautious Managed||4.9%||-4.1%||10.0%||0.9%||0.2%|
|IA Mixed Investment 20-60% Shares||6.9%||-3.2%||14.6%||3.4%||-0.1%|
Past performance is not a guide to the future. Source: Lipper IM to 28/02/2019.
A focus on the UK hasn't helped because its stock market's been weaker than most other major markets. Payne thinks there's a lot of value in the UK market at the moment though and the share prices of many companies doesn't reflect their longer-term growth potential. The fund could benefit once sentiment towards the UK improves.
The manager's value style of investing, which involves looking for out-of-favour companies that have the potential to do better in future, also held back performance. It hasn't done as well as other investment styles in recent years.
British American Tobacco is a good example. Its share price fell last year because investors worried about the potential for more regulation in the tobacco sector. Payne thinks investors have overreacted to recent news though and is confident the company will recover. In the meantime it pays an attractive dividend.
The fund yields 3.60%, though yields are not a reliable indicator of future income and dividends are variable and not guaranteed. It takes its charges from capital, which could help boost the yield but reduce the potential for capital growth.