Premier Miton’s Chief Investment Officer
Neil Birrell, Premier Miton’s Chief Investment Officer and manager of the Diversified fund range looks at the balance of the asset allocation and within the underlying asset classes across the range of funds
Managing a range of multi asset funds brings with it a non-stop succession of decisions that have to be made, which is why I surrounded myself with a very capable investment team of experts in different asset classes! That has been vital over the last few months, which have been frantic. But we seem to have a period of relative calm in markets. I have no idea how long it will last but I intend to make the most of it and it does provide a brief moment for reflection.
In favour, being balanced
We have made more asset allocation changes this year than in the history of the Diversified fund range. Individually, they have not always been large, but incrementally they have been significant. The equity weightings are at lows and in the Diversified Growth Fund and Diversified Dynamic Growth Fund we have ventured into bonds for the first time in, well, I can’t remember when. These are meaningful changes. They have been driven by the markedly changed economic and financial market conditions that we have experienced over the last year or so.
Don’t worry; I am not about to launch into a discussion about inflation and rising interest rates or the imminent demise of the FAANGs or staggering value that can be found in the UK equity market; you have read that here or elsewhere before. This is more about how, when I look at the funds today, I have a high degree of comfort in their structure and overall profile across and within asset classes.
If we go on a tour of the asset classes.
Bonds; there is now more return available for less risk than there has been for many, many years. As we wrote about last month, we have increased the exposure across the range of funds, but not in an aggressive manner or taking on unwanted risk. Let’s not forget inflation and interest rates are still going up; that is not usually a good backdrop for bonds. But, they have fallen a long way and are, arguably, discounting much of the bad news. Adding to the weighting in bonds and increasing the risk profile over time, strikes us as a balanced approach. We do not know what is going to happen.
In equities, much has been made of the ‘“growth’” and ‘“value’” factors over the last few years. We seek to invest in good quality companies, that are growing more than their peers at attractive valuations. We have never been ‘“growth’” or ‘“value’” investors, although we have made more investments in companies at the growth end of the spectrum. We seek companies that do well though different economic conditions. But, through this year we have been adjusting our exposure and adding to companies that are more likely to benefit, relatively, in weaker economic conditions. A pragmatic approach as we enter more uncertain times.
The exposure to property is via listed property companies; as we discussed in the note a month ago, they have had a torrid time recently, although we are big believers in the long term prospects for the asset class. Importantly, within the asset class we seek those subsectors that we consider to have the best prospects and companies we believe have management teams that can add value. Given the short term uncertainty, we have dialled back our appetite for the asset class, to keep the overall risk of the funds where we want it.
Alternative investments have always played an important role in the funds. They provide interesting investment opportunities, diversification and, typically, a lower correlation to bond and equity markets. In themselves, they provide a balance to the investment portfolios.
I have referenced the uncertain outlook more than once, and it certainly is. Although, there is always a level of uncertainty, it is heightened at present. This is why we employ an active approach to the portfolio hedges; to provide insurance policies in periods of market weakness.
To repeat myself; I feel comfortable with the asset allocation across the range of funds and what the investment team are doing within each asset class. In my view these provide balance in an uncertain period. But, of course, I could be wrong.
Out of favour; sole traders
The financial market conditions we have been enduring can take their toll on investors; amateur and professional alike.
It has been very instructive and encouraging to watch the Diversified funds investment team through the turmoil. The level of interaction, discussion, debate and, indeed, disagreement in a collegiate and constructive manner. This has in my view, led to good investment decisions being made. We have remained focused on the specific risk / reward profiles of each fund and the underlying asset class positions has been important part of that.
None of that means the funds will necessarily produce investment returns that compare well to peers or market indices, but, in my view, it gives us a better chance of doing so.