If fund managers had a magic wand, some would “reluctantly” use it to ensure the UK stays in the European Union, according to a poll of FE Alpha Managers, while others would rather double the returns of their portfolio or lead the Northampton Saints to victory in the European Rugby Champions Cup.
With the FE Alpha Manager Awards taking place on 14 April, FE Trustnet asked a selection of the 79 managers nominated in 16 categories – which include FE Alpha Manager of the Year, Best in UK Equity and Best in a Bear Market – what they would like to see happen if anything was possible.
In the following article, we reveal the magic wishes of managers such as Woodford Investment Management’s Neil Woodford, M&G’s Richard Woolnough and Troy’s Sebastian Lyon.
Strong investment returns
Luke Kerr, manager of the Old Mutual UK Dynamic Equity fund, expresses the most obvious wish of fund managers when he said: “Simple, double all my stocks and go on holiday!”
This request was also made by a number of the other FE Alpha Managers quizzed.
Julian Fosh, co-manager on Liontrust Special Situations, Liontrust UK Growth and Liontrust UK Smaller Companies, said: “I would like to see a recovery in the markets so that equity investors continue to experience positive absolute returns despite low growth and interest rates being at historic lows.”
Performance of indices since markets bottomed in March 2009
Source: FE Analytics
Meanwhile, GAM Star Credit Opportunities manager Anthony Smouha said he would want to see “2015 global growth surprises on the upside, a recovery in commodity prices and credit outperforms more than expected”.
The opening months of 2016 have presented some challenges to these hopes, with global stocks dropping by close to 10 per cent in the opening six weeks of the year before embarking on a snap rally more recently.
But the outlook was clouded further this week, following a speech by International Monetary Fund Managing Director Christine Lagarde that warned of increasing downside risks to global economic growth. "The recovery remains too slow, too fragile, and risks to its durability are increasing," Lagarde said in Frankfurt.
UK remains in the EU
The event grabbing the headlines in the UK at the moment is the country’s looming referendum on its membership of the European Union. Two fund managers said they would use their magic wands to prompt a ‘remain’ results in the referendum.
Chris Reid, co-manager of the Majedie UK Income and Majedie UK Focus funds, said: “I invest in the world as it is today rather than how I might perhaps like it to be, so I try hard not to hope for anything happening in the stock market in the future.”
“However, strictly from a professional point of view, I would reluctantly utter the spell that keeps the UK in the EU, but one that is far improved operationally from what it is today, because – as 14 years of marriage has taught me – in the end it is better to Jaw-Jaw than to War-War.”
Old Mutual UK Smaller Companies manager Dan Nickols added: “This year, I hope we vote to stay in the EU and, far more importantly, that Leicester City win the Premier League title (as my kids are Leicester fans).”
The referendum will take place on 23 June. A Brexit poll tracker by the Financial Times, which aims to summarise the results of various opinion polls, suggests that the ‘remain’ campaign has a three percentage point lead over the ‘leave’ campaign.
Latest FT Brexit poll tracker
Source: FT poll of polls, as at 3 April 2016
More normal monetary policy
Interest rates were dropped to record lows in the wake of the global financial crisis as the likes of the US and the UK’s central banks attempted to kickstart economic growth. They remain at low levels today.
Although the Federal Reserve’s Federal Open Market Committee (FOMC) made its first interest rate since the crisis in December, commentators are split on how many more will be seen over the course of 2016.
When asked what he’d do with a magic wand, Richard Woolnough, who runs the M&G Optimal Income, M&G Corporate Bond and M&G Strategic Corporate Bond funds, replied: “I’d wave it at the FOMC to make sure they deliver on at least a few rate hikes in 2016!”
The most recent FOMC's median forecast called for two rate hikes this year.
Of course, the Fed is not the only central bank that cut interest rates. The Bank of England still has its base rate at a record low of 0.5 per cent and many doubt it will make its first increase any time soon; meanwhile the European Central Bank and the Bank of Japan have adopted negative interest rate policies.
Government bonds with negative yields, 2014-2016
Source: BlackRock Investment Institute, MSCI and Thomson Reuters, March 2016
Troy Asset Management’s Sebastian Lyon says his wish is for “a normalisation of interest rates” but adds that there seems to be “fat chance” of this coming about any time soon. Lyon has long held the view that central bank’s extreme monetary policies are creating significant risks for investors and has positioned his Troy Trojan fund in a very defensive manner.
An end to bond blindness
George Godber, co-manager of the CF Miton UK Value Opportunities fund, wants investors to realise that buying bonds when the aforementioned monetary policies have pushed them onto expensive valuations could be a risky strategy.
He is considered that some investors assume bonds to be a ‘safe’ asset just because they have tended to act that way in the past.
“If I had to wave a magic wand it would be to make asset allocators realise that buying bonds on multi-century extended valuations is not a sensible thing. Risk is just as much about valuation as it is the asset class,” he said.
FE Trustnet has looked at this view on a number of occasions, after leading multi-managers said running a cautious portfolio has become “exceptionally hard” because of the expensive valuations being seen in traditional safe havens like government bonds.
Not wanting to use his magic wand just for investment, Godber said: “I would also ask for Northampton Saints to win the European Champions Cup.”
Scientific advances
Neil Woodford, who runs the CF Woodford Equity Income fund and Woodford Patient Capital trust, has loftier aims for his magic wand than concentrating solely on investment – albeit one he has a vested interest in. 
“I don't have a magic wand but there are lots of things I would wish for in the years ahead,” he said. “Some of them we are trying to help with, by backing early-stage businesses with innovative, disruptive and potentially life-changing science.”
Woodford Patient Capital has around 75 per cent of assets in early-stage and early-growth companies, typically those that are working on innovative products or services and have “outstanding intellectual property”.
Top holdings include clinical-stage biotechnology company Immunocore, molecular analysis firm Oxford Nanopore and proton beam therapy centre business Proton Partners International.
