Admitting you have made a mistake is something very few of us are willing to do, but for a fund manager it is crucial to learn and move on.
Simon Evan-Cook has learned his lesson of shying away from the US market on valuation grounds, understanding that he is a better fund selector than he is asset allocator.
“I’ve always been negative on the US and I’ve always historically been completely wrong on that front. I’ve not changed my tune on it, but what I’ve said it ‘if you can’t beat them, join them’,” he said.
The fund manager largely kept asset allocations on his own desk when managing money at Premier Miton, where he was most notably in charge of the Multi-Asset Global Growth and Growth & Income portfolios.
But since he has made the move to Downing, where he is in the process of launching a new fund range and modelling his strategies, he has changed his approach.
Evan-Cook said this has allowed him to start afresh. One key difference is the introduction of global and US equity funds.
“I didn’t buy global equity funds previously, but they now make up half of my portfolio. Clearly, I have proved not to be very good at allocating on a regional basis. I don’t think many other people are either to be honest,” he said.
“I am happy for the global equity funds to take my asset allocation where they believe it is best and they are finding the best stock ideas.”
One of his new holdings is Kennox Strategic Value, a “star performer” in his models so far this year. Indeed, since the start of 2022 the portfolio has made 12.5% while the average IA Global peer has lost 11.8%.
Total return of fund vs sector year-to-date
Source: FE Analytics
“The team is effectively looking for a handful of companies that they consider to be very high quality and attractively valued. They focus on relative valuation and can go anywhere, buying small-, mid- and large-caps,” Evan-Cook said.
“I particularly like this type of fund today because you have a lot of severe valuation risk in a lot of markets and you have a bumpy time ahead economically. If you can mitigate those by finding the limited number of companies that are both good quality and not egregiously expensive, I think that is a good place to be.”
“The only differences are that it is global and that it doesn’t have an income requirement. Other than that the principle is the same as Yarrow’s fund, which has been a great performer for me over the past 10 years,” said Evan-Cook.
The team invests in high-quality companies but are not willing to overpay, although they have less of a value approach than the fund above.
“The key thing for me is they buy the companies that can survive a rough time and it feels to me like the next 10 years might be an unusually rough time in both political and economic terms,” he said.
Evan-Cook also has an allocation to the US specifically through his holding in the HC Snyder US All Cap Equity portfolio.
Similar to the two funds above, it is concentrated and the managers buy stocks that are high quality and not overvalued. “There isn’t a whole lot more to it than that,” he said.
“The team do a lot of deep research and spend a long time analysing a company to make sure it is good enough and at a good price. I would say it is more on the value side than growth but the track record over the past decade when value has underperformed has been good despite that,” he added.
“If we do see a good decade for value, good for the fund, but if it goes the other way it should still do okay, which feels like a good each-way bet.”
Away from the US the fund-of-funds manager has also backed a new UK portfolio: the Allianz UK Listed Opportunities fund.
“This is one of the deeper value funds in my portfolio,” he said, but noted that it has a distinct advantage over many value alternatives – its size.
He added: “It you can find a genuinely active value fund that is small enough that it still will take up stock-specific opportunities rather than having to wait for sectors such as banks or commodities to come around, then that is a very good option.”
One thing investors should avoid, he argued, was funds that have become so large that they can only invest in large-caps, as they become more reliant on beta than alpha.
“This fund is small enough that I believe it can make its own fortunes by finding very specific examples of companies that have fallen out of favour but are perfectly good, and where the price will revert to something like fair value over the coming years,” he said.
Total return of fund vs sector and benchmark over 10yrs
Source: FE Analytics
Performance-wise, the fund has done a “good job” over the long-term, making 163.9% over 10 years – a top-quartile effort in the IA UK All Companies sector – and a “fantastic job” over the past year, when it has made 11.1%.
Last up is the Stewart Investor European Sustainability fund, which Evan-Cook said has struggled this year. Indeed, since it launched in January the portfolio us down 9.8%, failing to beat the average IA Europe Excluding UK peer or the MSCI Europe ex UK index.
However, he said it was a good example how he is building his new funds, buying into teams that he trusts but where he may get a discount.
“It is small so it is in asset-raising mode, which means you can buy it for a lower OCF [ongoing charges figure]. When you consider the quality of the wider Stewart Sustainability team – and I think it is the best team in the market – to be able to buy what they do (albeit in the European space rather than global or in Asia) at that charge is a bargain,” he said.
The fund’s quality approach as been out of favour this year, while its small- and mid-cap exposure has also been a hinderance. But Evan-Cook said now could a good time to buy the strategy.
“That doesn’t mean there won’t be a better time over the next few months, but in terms of buying a fantastic fund at a low charge and an interesting entry point, it is a good example of the kind of thing I’m looking at in my portfolios,” he said.
|Fund managers (s)
|Allianz UK Listed Opportunities
|IA UK All Companies
|Matthew Tillett, Richard Knight
|HC Snyder US All Cap Equity
|FO Equity - USA
|Peter Eisele, Gary Rafferty, Charles Swain, Scott Molinaroli
|Kennox Strategic Value
|Charles L. Heenan, Geoff Legg
|Stewart Investor European (ex UK) Sustainability
|IA Europe Excluding UK
|Lorna Logan, Rob Harley
|TB Evenlode Global Equity
|Chris Elliott, James Knoedler