Hoshang Daroga has been investment director at Elston Consulting since 2022. Before that he was senior portfolio manager at Copia Capital Management. Before this he held a series of analyst roles in the US.
Which fund in your portfolios are you most pleased with?
Artemis US Smaller Companies fund has done very well. We added this fund to a few of our mandates about a year ago and it has performed way beyond our expectations. The size of the US small cap universe presents a good opportunity for active managers to be selective in their stock picks.
The fund manager Cormac Weldon is a seasoned investor and has managed to deliver high levels of alpha.
Which was your worst asset allocation call and what did you learn from it?
We had been underweight gilts and long duration bonds since December 2021, which worked out extremely well in hindsight.
In the summer of 2024, interest rate cuts were on the horizon and so we increased our allocation to gilts and long duration bonds, which didn’t quite work out as intended.
Our biggest learning was to avoid bonds during periods of fiscally expansive budgets!
Right now, China or India?
Both! We like India as it has a structural growth story and following the recent dip in Indian markets, we are taking this as an opportunity to buy.
China on the other hand offers some extremely dislocated valuations. The government has stated it cannot tolerate any further weakness and we see a floor in place.
Even if the China story doesn’t play out in the short term, it offers a great long-term entry point as eventually things are bound to improve from here.
What macro issue is having the biggest impact on your portfolios? How are you addressing it?
Uncertainty around trade tariffs is having the biggest impact on not just our portfolios but for global markets in general.
Since the investments are long-term it is best to ride out the volatility rather than trying to guess which country or sector will be impacted the most.
Which fund do you particularly admire that isn’t held in your client portfolios? Why don’t you hold it?
We find the Virtus US SMID Cap Equity fund very interesting. It is not a very popular strategy in the UK but the team has been managing money successfully in the US for decades.
Its investment approach focuses on high quality, profitable companies in the US small and mid-cap universe.
Unfortunately, due to platform onboarding processes, this strategy hasn’t had the exposure it deserves in portfolios.
Best source of uncorrelated returns?
In 2021, we heavily researched assets and exposures which offer uncorrelated returns to equities and bonds in different inflation environments.
This research led us to a few sectors which are able to deliver accordingly and the fund managers at the Avastra Global Alternatives fund have implemented this strategy since December 2023.
Performance over the last 12 months has been very good (+13% as of February 7) for a diversified alternatives strategy and the overall beta to equities and bonds is below 0.3, indicating low correlation to traditional assets.
This helps boost diversification in portfolios and improve risk adjusted returns.
How are you keeping costs down?
There is perennial pressure to keep costs down and offer better value for money.
By leveraging of our relationships and scale, we are able to get access to lower cost institutional share classes of funds, compared to retail share classes which most advisers have access to.
What do you think is your most interesting tactical call at the moment?
We have published a lot of research on US S&P 500 equal weight exposure and have been optimistic about it since the summer of 2024.
With the US economy continuing to show resilience and inflation moderating, we see the earnings growth gap between large-cap tech and rest of the market closing.
One of our themes has been broadening of the rally and the simplest way of getting exposure to this theme is via the equal-weight S&P 500 index.
We see concentration risk as a choice, not an obligation.
Is there an asset class you are currently on the fence about (buying or selling)?
We are on the fence when it comes to UK and EU smaller companies.
On one hand we have structurally weaker growth in these economies and persistent higher than target inflation, but on the other hand we have compelling valuations with the sector being very unloved as fund flows point to persistent redemption of assets.
What (other than Asset Allocator of course!) have you read recently which you’ve found particularly interesting or insightful as regards your work managing portfolios?
I read Bloomberg a lot. There are a lot of interesting insights and research available on it which helps shape our views on economies and markets.
What’s your hottest investment take?
Gold has been one of our hottest takes and as much as it appears “toppy”, it is in a structural bull run which can continue as central banks (price insensitive buyers) continue to hoover up large quantities of the yellow metal.
It’s a great hedge to equity and bond markets due to its uncorrelated nature.
