Alliance Bernstein Fund Cushioning Downside Is Staying Cautious

(Bloomberg) --

A strategy of winning by losing less than its peers paid off for Alliance Bernstein Australia Ltd. during one of the roughest periods for global equity markets.

The AB Managed Volatility Equities Fund, already defensively oriented, turned even more so early this year: It sold all its holdings of Qantas Airways Ltd. and Sydney Airport in January and throughout the first quarter continued to trim positions in firms whose revenues would be at risk as social-distancing became a global phenomenon, Roy Maslen, chief investment officer for Australian equities, said.

The fund's cash level, typically about 2% to 3%, is around 10% now, the most since its inception six years ago, Maslen said. He doesn't plan to jump back into the market just yet -- despite the monetary and fiscal liquidity globally to help economies recover from the impact of the coronavirus -- until he becomes more confident about corporate health, Maslen said.

“We are not reinvesting because we are still concerned about where the earnings and cash flows are going for many companies,” Maslen said in an interview last week. Those measures currently “don't reflect the ongoing economic challenges ahead of us,” he said.

The fund lost 10% from the end of last year through April 30, beating the -16% return on its benchmark S&P/ASX Total Return 300 Index, according to data compiled by Bloomberg. It's outperformed 92% of peers over the last year.

The portfolio reduced its exposure to REA Group Ltd., an Australian operator of residential and commercial property websites; sold out of Woodside Petroleum Ltd., and cut its holdings in Vicinity Centres, which operates shopping centres across Australia, Maslen said. Internationally, it cut its holding in Adidas AG. The fund can invest up to 20% of assets in international equities.

“As we went through February, it became increasingly clear that social distancing looked like it could go well beyond what we were seeing in China,” Maslen said. At the beginning of March “we decided that we needed to reduce our risk to social distancing going global.”

It reinvested some of the cash in companies whose revenues are not reliant on day-to-day interactions, such as Telstra Corp., Insurance Australia Group Ltd., gold companies and supermarkets. It holds Coles Group Ltd. and Woolworths Group Ltd. whose shares have rallied as consumers raced to stock up on essentials. Overseas, it invested in Citrix Systems Inc.