Russell Investments Market Update TESCO and PIMCO Holdings.
In this month’s blog I thought it may be useful to draw your attention to a few key pieces of news that you’ve no doubt seen in the past month along with the usual Russell updates.
The first of these big news stories was that of Tesco and their gross overestimation of their half-year profit guidance to the tune of £250m. This led to a rather hasty shake-up of management and the fast-tracked appointment of their new Chief Financial Officer, Alan Stewart. Predictably, Tesco’s share price took a rather sharp tumble as a result of uncertainty as to how such a major miscalculation could occur.
The second big news story was that of Bill Gross’ departure from PIMCO. Widely regarded as one of the greatest investors of our time, Gross’ departure was far from unexpected if rather abrupt. Uncomfortably public disagreements with the management team at the investment house over an extended period of time along with the acrimonious departure of Mohamed El-Erian in January have meant that the writing has been on the wall throughout 2014. Gross’ move to Janus Capital has resulted in a tsunami of outflows from his Total Return Fixed Income Fund of $23.5 billion at the time of writing (roughly 10% of the fund’s AUM as at the end of September).
So, both of these stories are pretty big and have had rather a lot of mainstream media attention – but how have they affected our portfolios, all of which have exposure to both Tesco and PIMCO?
The Russell UK Growth Assets Fund has had a position on Tesco for a long while, though severely underweight relative to the fund’s FTSE All-Share Index benchmark. Tesco accounts for 0.1% of the fund (or 0.011% of our Balanced portfolio, for example). This was not an event that any stock picker short of a clairvoyant could predict, but it is comforting if nothing else to know that whilst capital weighted indices will be predisposed to featuring such corporate giants heavily, the Russell funds are not allocated in the same manner.
PIMCO strategies feature within the Defensive Assets Fund, representing 8.2% of the fund’s 40.3% allocation to various fixed income strategies. They run high yield, global credit and government bond strategies for us and none of these mandates are managed by Bill Gross or his direct team; meaning that they are unlikely to be affected immediately by this particular high profile departure. We have been monitoring PIMCO closely since January of this year when El-Erian – the man tipped to be Gross’ successor – left the firm amid concerns of possible management instability. Since then, we have strategically reduced our exposure to the firm across a number of our strategies in anticipation of a change coming. Again, all but a clairvoyant could have predicted the timing of Gross’ resignation, but our manager research team have worked over the year to ensure that they were prepared.
Thanks to Russell Investments for the information.