Salmon Fishing in the Yemen was a 2011 British romantic comedy in which a fisheries expert was given the impossible task of bringing the sport of fly-fishing to the Yemen desert.
For Anthony Rayner (pictured), fund manager on Miton’s multi-asset portfolios, the impossible task he has set himself is taking human emotion out of investment decisions – and this has led him towards salmon fishing, not away from it.
Rayner describes his team as outcome investors, meaning that suppressing volatility or providing a quarterly income is more important than keeping up with an index or peers. As he puts it: “Performance is one side of it, but on the other is how do you get there? For our clients it is more important than capital gain, severe capital loss being very painful.”
To help achieve the fund’s aims, the team buys baskets of stocks that will benefit from certain themes it has identified. For example, it will buy a basket of US consumer-facing stocks if the economy is growing.
“We don’t want to buy the next big consumer stock,” Rayner explained. “And we’re not the type of investors to say ‘well, this will be a good idea within 12 months’ – we haven’t got that time to waste. So we’ll miss the first bit of growth, and that’s fine, we just want to be swimming in the right direction. We never say ‘we’re right and the market is wrong’. The market is always right. It might be inefficient, but it is always right.”
The team’s process has evolved over time to recognise its strengths and weaknesses and Rayner said that part of that is recognising that human behaviour can be unhelpful for making sensible decisions.
As a result, the manager said the team doesn’t visit companies it is thinking of investing in, nor does it make calls on individual stocks.
“If we want to have exposure to oil, we are pretty much going to have half our position in BP and half in Shell,” he continued, “otherwise that is letting human behaviour get in the way, so it’s more about figuring out our stance and thinking about where we can add more value.
“We think about how volatile this basket is, how correlated it is and how liquid it is and if all those things are quite low, maybe have a bit more of it, and if they get up quite high, we will maybe cut back on it. So that is how we scale risk – not by conviction. Again, that’s how we get rid of human emotion.”
It is a similar story when the team comes to sell out of a position. The main driver of this is a change in momentum, with Rayner pointing out that examples of “expensive” stocks becoming even more expensive are too numerous to mention, meaning valuations aren’t a good signal of timing. Again though, he said the most important thing is taking emotion out of the decision.
“How we set up the team is quite interesting because we don’t really attach ideas to individuals and that makes it easier to sell out of a position,” he explained.
“This is sensible because if you want to sell something, you want to get that emotional position out of the way so you can focus on the rest of the portfolio. If it’s broken a 180-day moving average, there’s got to be a damned-good reason not to sell it. That’s a nice mechanical way, it’s just a stock in a basket, whereas if you have visited a company and you’ve met the chief executive and you remember the name of his cat and all that sort of stuff, inevitably you let emotion come into it.”
To reduce risk, Rayner will play a number of macro themes – he said it is important they are not just different names, but actually behave in different ways. To do this the manager and his team prefer to select baskets of stocks they have put together themselves rather than use an ETF. However, they will often begin by looking at the constituents of one of these products before screening the stocks against a number of metrics such as earnings growth and their debt profile – and this is what led Rayner to invest in two Norwegian salmon farms.
“That’s interesting to me because there we have immediate exposure to something we haven’t got anywhere else in the portfolio, we don’t have any other exposure to the Norwegian currency for example,” he said.
“And a lot of what’s driving salmon stocks is healthier demand from people and the fact that wild salmon has met its supply limit, so a lot of it is farmed salmon and that is supporting the price.”
“So, we have taken a couple of positions in that and they have done very well. People make jokes about it, asking whether we have ‘scaled them correctly’ or if we are ‘swimming against the tide’, but the important thing for us is that we own things that are different, we don’t want things that are moving in the same direction.
“You know, you have a view of the world and it does cover a lot of things, but if you are not careful suddenly everything is pointing in the same direction. So if we can get exposure to tractor manufacturers or fertilisers and across different regions, that is just a sensible way of us getting exposure to different themes, diversifying geography and currency, that sort of thing.”
Data from FE Analytics shows Rayner’s largest fund, LF Miton Cautious Multi Asset, has made a positive return in every one of the past 10 calendar years. It is up by 25.2 per cent since Rayner joined at the end of 2014, compared with 15.46 per cent from the IA Mixed Investment 20-60% Shares sector and 22.44 per cent from the FTSE All Share. Its maximum drawdown over this time is 6.8 per cent, compared with 9.44 per cent from its sector and 16.32 per cent from the index.
Performance of fund vs sector and index under manager tenure
Source: FE Analytics
The fund is £529.4m in size and has an ongoing charges figure of 0.84 per cent.