King and Saunders celebrate one year of outperformance
Co-managers Max King and Phil Saunders have celebrated the first anniversary of running Investec’s Multi-Asset Protector fund.
Launched on 30 January 2009 and sitting in the IMA Protected sector, the fund has outperformed its peer group since inception.
The £81m vehicle is ranked second out of 36 vehicles over its first year, up 19.3% against a sector average of 4.4%, according to Morningstar.
Investec’s Multi Asset Protector fund aims to provide exposure to the markets with a lower level of volatility than a traditional equity, bond or even multi asset fund.
It utilises three elements to help achieve this target: a multi-asset approach, a predetermined formula to determine exposure to the multi-asset portfolio or to cash and a put option from counterparty Deutsche Bank.
This counterparty means the fund should be protected to 80% of the highest ever share price.
Equities accounted for 46.7% of the fund’s exposure at 31 December, followed by bonds 35.7%, cash 12.4%, property 3.3% and alternatives 1.9%.
The UK is the largest country of investment, accounting for 62.2% of exposure, followed by the US 20.2%, emerging markets 8.4%, Europe 3.9%, Asia ex-Japan 3.8% and Japan 1.5%.
Philip Saunders and Max King are two of Investec’s most experienced fund managers. They both work within the firms’ multi-asset investment team and are responsible for managing approximately £1bn of assets.
The managers’ analysis of the sector led them to believe other protected funds were very good at protecting investors, but not very good at making money for them.
“Basically investors were investing in funds which were producing neither risk nor return and the managers were getting a management fee for really at best cash-like returns,” King explains.
“We thought this was not good enough so we investigated the possibility of what sort of returns we could offer, in what structure, and with a guaranteed protection.
“We spent a lot of time deciding what portfolios we could use, and how we could protect investors and what level of protection we could provide.”
King says the launch date was about six months later than originally planned, but this was partly because the managers wanted to make sure they were happy with the level of protection. MAP fund has a protected level of 20% below the highest NAV.
“The higher the protection the lower the level of returns are likely to be, so we needed to pick a trade off and 20% was the figure we chose,” King says.
“We looked at the idea of doing 15%, but it was severely constraining our investment style. On the other hand we thought 25% was too much.
“We actually think 20% protection is a lower floor than investors would like. Our strategy is to give a guaranteed protection of 20%, but our intention is we will keep well within these limits under normal market circumstances.”
King believes the fund’s strong performance is because when the market was weak in February 2009 the managers stood back and kept most of the money in cash. “This meant the lowest NAV we got to was around 96p at a time when the markets were very weak,” he says.
In March, when the managers thought the market had reached a low, they decided it was time to put some money into the market, which they did relatively aggressively.
King says the fund has also benefited from the multi-asset structure. “We have had some good equity weightings but never more than 50%. We put a bit into property at a timely basis, and our bond exposure has been almost entirely in corporate bonds – and mostly in investment grade corporate bonds in Europe, UK and the US,” he says.
“We have had up to 5% exposure in high yield, and we have also had emerging market debt exposure. But we have had no government bonds.”
King says the fund’s cash levels may reduce further when he and Saunders gain a higher degree of conviction about valuations, provided it fits within risk controls.
“At present we are satisfied with the distribution of the portfolio. We have a lot of internal funds and ETFs. However, we do not have many external funds, and this component will probably increase a bit,” he says.
“Although we have sector favours we do monitor the global exposure quite closely. Rather than country allocate, the core of our investment process is allocating to UK and global funds.”
The fund has exposure to UK small caps and healthcare on valuation grounds, while the managers also favour energy.
“We are not bulls on the oil price, but we do think energy prices – not just oil but also gas – are currently something of a sweet spot,” King says.
