It is inevitable that around year end, fund managers will reflect on the year that has passed and ponder the one that is coming. I do the same thing, partly because I write several commentaries and insight notes for the Diversified funds and more generally, which require those observations. Frankly, though, running through what has happened is not always useful or interesting, but what is coming up, is much more relevant.

However, I have spent a bit of time thinking about what has passed, not so much in 2022 itself, but more the last 3 years; particularly, how the investment team has produced very impressive performance numbers, in my view anyway, given the events through that period. Don’t worry, I am not about to reel of a stream of data; this is more about investment process and strategy.

Firstly, it is worth remembering what the last 3 years held for all investors, in fact society in general. In a loose chronological order, a global health crisis, societal lockdowns, economies collapsing as never before, unprecedented economic support packages, rapid economic recovery, more lockdowns, vaccine roll outs, re-opening of society, supply chain blockages, energy price spikes, political turmoil, rampant inflation, sharply rising interest rates, war in Europe, and a looming recession.

That is quite a list and, unsurprisingly, financial markets (bonds, equities, commodities, property, crypto currencies, you name it) all had an extreme and volatile time. To manage funds successfully through that requires one of, or a combination of, 3 things.

1. Luck.
2. One or two major decisions that go very well.
3. An investment process that can adapt to volatility and clarity of thought and execution.

In my view, number 3 is what the Diversified funds benefitted from. Although, we clearly had some luck as well, we did not make one or two major decisions at specific times that built the cumulative 3 year performance picture. That was driven by good decision making and execution throughout the stressed period for markets. I think there are key reasons for that.

Firstly, teamwork; whilst there are 5 different investment teams working on the funds, they are all aligned with one common purpose in this case. You will hear fund managers all being positive at the same time about their diverse range of asset classes or funds, that is normal and to be expected; they believe in what they invest in. But asset classes or sub-asset classes do not all behave in the same way at the same time, they do different things at different times.

With the Diversified funds, each investment team involved in their management wants the funds to perform well, their interests are aligned and this leads to open, honest, informed debate and decision making. A collegiate approach that gets the best out of all the experienced fund managers involved.

Secondly, making good investment decisions and acting on them. This may seem obvious, but in my experience, many fund managers are not enfranchised to take decisions and make changes to funds in stressed (or even quieter) markets or they are unprepared to do so. At Premier Miton, we are very much in the former camp. For the Diversified funds, that works at two levels: asset allocation and the management of the investments within those asset classes.

Thirdly, we must learn and grow. Whilst we believe our process works, we cannot stand still, markets don’t. The best example of how we have evolved our process over the last 3 years is in risk management and the introduction of new investment strategies. The investment team have worked with our independent internal risk team to understand and quantify the risks taken in the funds at a more granular level. This provides the data.

On top of this, we have looked more closely at some of the biases and factors within the equity exposure, much more than just geography and sector. Again, that helps manage fund risk profiles. We also introduced new derivatives based alternative and defensive strategies after a long period of review and back testing. These allow us to be much more focused in our hedging and approach to downside protection.

There is much more to running a range of 6 global multi asset funds than that, but I think what is described above is crucial in producing durable returns in different market conditions over time, for the Diversified funds, anyway.