McQuaker recognised for consistent performance

Henderson manager’s quarter decade of experience bags him Cautious Managed Manager of the Year and Multi-Manager/Fofs awards at IW awards

Bill McQuaker was named Cautious Managed Manager of the Year for his Henderson Multi-Manager Income & Growth fund at Investment Week’s 2010 Fund Manager of the Year Awards last month. Henderson also picked up the Multi-Manager/Fofs award.

McQuaker has over 25 years’ investment experience and is responsible for overseeing the management of Henderson’s equity assets.

He has run Multi-Manager Income & Growth since July 2005, consistently delivering top-quartile returns. According to Morningstar, the £407m fund is ranked second out of 69 vehicles in the IMA Cautious Managed sector over five years to 19 July, up 38.6% compared to a sector average increase of 14.6%.

Over three years it is ranked 10th out of 105 funds, up 11.4%, compared to a sector average fall of 1.5%. Over one year the fund is up 17.7%.

McQuaker has also managed the £75m Multi-Manager Distribution fund since July 2005. The fund is ranked third in the IMA Cautious Managed sector over five years, up 38%. Over three years it is ranked 11th, up 11.4%, and over one year is up 17.7%.

He took over the reins of the £129m Multi-Manager Managed fund from Mark Harris and Craig Heron last month, following Henderson’s revamp of its fund range. The vehicle, formerly known as the Managed Portfolio, sits in the IMA Balanced Managed sector and is up 20.2% over one year.

What is your investment process?
It is a not atypical combination of asset allocation and fund selection. We have quite a large team at Henderson. I am responsible for getting the overall shape of the fund right – that is the asset allocation side of things. Mark Harris and Craig Heron, who joined us from New Star, together with some analysts do the majority of the work on the fund selection side. In terms of how we go about generating ideas, it is a combination of my own insight into markets. I have been looking into markets over the last 25 years. I read very extensively and I take ideas from colleagues here at Henderson and from individuals I have known over the years, whose insights I have grown to respect and trust. There is nothing very revolutionary in this but I think it has stood us in quite good stead over the last five years in terms of coming up with interesting ideas for the portfolio.

On the fund selection side, we do a combination of quantitative and qualitative analysis, which is fairly rigorous. The analysts put together notes on individual funds. I think one of the characteristics which is quite appealing about the work they do is they are trying to generate investment recommendations rather than note every feature and facet about the fund. The aim is to come up with a view of whether the fund will add or not add value to the portfolio if we were to buy it.

What are the reasons for Multi-Manager Income & Growth fund’s outperformance?
It has been principally driven by good asset allocation decisions. In 2008, we were quite acute in appreciating in the middle of the year that the global economy was probably going to go into recession. This led us to take our exposure to equities down quite significantly, and we replaced it with bond exposure. In the first part of 2009, we started the process of rebuilding our exposure to risk assets, so by the time we got to the second quarter we had quite a significant bet on equities again. This was the primary reason for our good performance in 2009. We have had Asian currency exposure for the last three years and Asian currencies have performed quite well against sterling and against other currencies, and this has been quite an important contributor. The position we have had in gold has also been a useful contributor.

What are the reasons for Multi-Manager Distribution’s outperformance?
The positions I have described for Income & Growth have also been in the Distribution fund. The only difference really is we have tried to express our views using funds that have got a higher yield. In the last few months, we have tried to differentiate the Distribution and Income & Growth funds to a greater extent by increasing the yield on the Distribution fund relative to the Income & Growth portfolio.

What significant changes have you made to the two portfolios in recent months?
At the end of March and going into April we were underweight equities. We did not believe the economy was going to double-dip. It was simply that after a year of very strong equity performance, we had reached a stage in the cycle where we thought there was quite a high probability lead indicators like the ISM index in the US and other indicators of the business cycle would reach peak levels and begin to weaken a bit. This is largely what has happened and we positioned in advance of this by taking money out of equities and putting it into cash.

Since then, markets have sold off a bit, and we have been moving in the opposite direction. We have put some equity exposure back in over the last four or five weeks, and we are now slightly overweight equities again.

It has been quite important for us to countertrade the markets over the last few years. When the market has been very optimistic and when people have felt quite confident about the outlook, more often than not in the last two or three years we have been inclined to take some risk off the table. Conversely, when the mood has darkened and become more fearful and prices have come down, we have been inclined to put risk back into the portfolio. And that is exactly what we have been doing over the last few weeks. We do not have a very large aggressive bet on equities but we are slightly overweight. My view is that, on balance, the economy is not likely to slip back into recession. I think with equities trading below 10 times earnings there is a new opportunity to make some money out of being exposed to risk assets, and we are trying to take advantage of this. In terms of where we have been putting money in the geographic sense, it has been into Europe, the UK and Asia

How will the funds develop over the second half of this year?
My suspicion is we will continue to look for opportunities to increase our equity weighting. I think this is likely to continue to go in the same direction, so into the UK, Europe and Asia. We may build on our exposure to index-linked bonds. We have added some exposure in this area over the last few months. It is not a particularly large exposure yet but I could imagine us increasing that, particularly if there is evidence to suggest the recovery is likely to continue. If we continue to see signs of wages rising in Asia and commodity prices continue to rise, all these things are potentially inflationary a bit further down the line. Our Asian currency position will certainly be maintained. I doubt we will add to it but we could add a little there. Those are the main things that could be in the offing, although one cannot be certain ahead of the event.