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Why Invesco’s Anness believes even bottom-up managers need an eye on macro

01 March 2017

FE Alpha Manager Stephen Anness explains why his global equities fund has been quiet recently and why it’s important to pay attention to the macro environment.

By Rob Langston,

News editor, FE Trustnet

Invesco Perpetual global equities manager Stephen Anness says a top-down view can be just as important as bottom-up stock selection, after the FE Alpha Manager turned in a top-quartile performance during 2016.

The £203.6m Invesco Perpetual Global Opportunities fund has returned 95.08 per cent between Anness taking over management in 2013 and the end of 2016, compared with a 65.18 per cent gain for the average IA Global fund.

Anness, who is lead manager of the fund working alongside deputy manager Andrew Hall, says the investment process is benchmark agnostic with a strong focus on bottom-up stock selection.

However, he says it also pays to keep abreast of the macro operating environment.

He said: “There’s a focus on valuations that often leads to you to be contrarian, but not just for the sake of it.

“In my opinion you have to have a good eye for top-down as well as the bottom-up. The top-down creates the operating environment: how a company will likely operate, what are reasonable expectation for growth.

“It’s rare to find a company that operates in total isolation from the macro backdrop.”

Performance of the fund vs sector during 2016

 

Source: FE Analytics

Last year, the fund – which aims to achieve long-term capital growth through a portfolio of global equities – returned 31.92 per cent compared with the average sector member’s 23.38 per cent rise.

“If you went back 12 months the market was in a real panic,” he said, highlighting concerns over oil prices, the Chinese economy and the threat of a US recession. “To be honest we understood where the concerns were coming from and thought that [markets were very overpriced in terms of risk.


“This time last year, you didn’t have to believe the world was great, you just had to assume that everything was going to be okay and slow growth was likely to continue.”

The market environment allowed the manager to top up some positions in some energy companies, selected industrial stocks and banks for a variety of reasons.

The manager said the banking stocks added to were mostly US-based, with a couple of Asian banks also included.

Anness (pictured) said banks had been trading at valuations rarely seen outside of the bottom of the financial crisis. Indeed, the fund’s current top 10 holdings include US banks JP Morgan Chase and Citigroup.

Currently the fund’s largest weighting is to US stocks, which represent 33.54 per cent of the portfolio. A further 24.64 per cent is made up of UK-listed companies.

One of the bigger challenges facing UK-listed companies was UK referendum on EU membership, which had a significant impact on markets although not quite as some had envisaged.

Anness says events of last year highlighted the challenge of trying to forecast markets. While the manager incorporates a top-down view, the focus on valuations also shines through at those times.

“Last year, a lot of people got not just the outcome of the event wrong but also the reaction,” he explained. “Brexit was a negative event for a period of time, but not really [in the longer term].”

Anness, who began his career at the Henley-on-Thames asset manager as an analyst on its UK equities team and was later a UK portfolio manager, says the reaction highlighted the strength of the UK blue-chip market.

“The UK market is one of the most international in the world, there are some big international players,” he explained. “The UK was a pretty good playing ground for doing global [investing].”

One area that is looking attractively priced to the manager currently is the healthcare sector, which has seen investor sentiment turn against it since the election of Donald Trump as president.

He says the sector had reappeared on its radar after having been off of it for some time as valuations remained expensive.


There have been few changes to the portfolio lately, says Anness, who manages the fund on a high conviction basis and owns around 40 stocks.

“We haven’t done that much [in the portfolio] for the past few month,” said Anness. “We have taken a little bit of money out banks we have added to Rolls Royce position [but, generally] we haven’t done that much.

“One of the things about running a concentrated portfolio strong case for inclusion in the portfolio don’t want to increase [the number of] holdings. If something is going in it has to offer better risk/reward or something different.”

With little cash on the fund’s balance sheet, room for any new holdings must first be made through the exit of an existing position.

“If something were to come in then something would have to come out,” he said.

“I take the view that if clients allocate to our portfolio it’s because they want global exposure, [they don’t] want to invest in global equities fund only to find [the manager] sitting on a massive cash position.”

The fund has an ongoing charge fee (OCF) of 0.95 per cent, as of 31 January 2017.

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