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Ashcourt Rowan CIO: We are raising the bar for active management

Ashcourt Rowan CIO: We are raising the bar for active management

Toni Meadows (pictured), chief investment officer at Ashcourt Rowan, says the flood of manager moves in the past year has prompted him to question the place of well-established names on his buy list.

Meadows said Ashcourt is ‘raising the bar for active management’ and will only include those with a track record of a consistent style that offer value for money.

‘We are trying to establish a list of managers who have reliable investment returns and deliver a particular style. The list is made up of investment managers that do not look the same but that can give exposure that we can change throughout the cycle, based on our view of the world,’ he said.

‘In the last year, a lot of managers have moved and that has given us the opportunity to re-evaluate some established names, and ask where we could get the same style with smart beta or passive exposure.’

He said oversized funds were an issue for the investment industry as investors keep piling into the big names. ‘Everybody gets used to using the same funds, which is why some have grown to such a size that they can’t execute what they set out to do. That is something the industry has to be aware of.’

An established name with a track record of running billions who will remain on the buy list is Neil Woodford, who the firm invested with at Invesco Perpetual.

‘It is interesting that with successful managers moving and setting up their own businesses it’s an opportunity to re-evaluate, and he is one we would follow,’ Meadows said.

However, L&G’s Dynamic Bond Trust was removed from the list earlier this year following Dickie Hodges' departure, as Meadows said he was a manager ‘with a quite definite view within a passive house’.

The CIO is also watching the advent of targeted return funds with interest, which he thinks could come out of the main investment houses and be adopted by wealth managers, as investors look for returns with low volatility.

Asset allocation calls

Looking back over the past 12 months, one of the biggest drivers of performance for Ashcourt Rowan has been an overweight in equities, based on the argument that the world is still a long way away from the withdrawal of accommodative monetary policy despite tapering fears.

In the balanced model portfolio, the weighting to equities at the end of June was 67%, versus 15% fixed income, 16% in alternatives and 2% in cash.

‘Going back to last June, it was just after [former Federal Reserve chair Ben]Bernanke’s speech and talking about the ending of quantitative easing took many by surprise,’ Meadows said.

‘In a lower for longer environment, there is enough growth in the world, so we added to equities at that time. In a zero interest rate environment world, there will be stimulus that continues even after the US stops quantitative easing (QE). We still see Japan printing money, while we have been of the view that the structural weakness of Europe meant the European Central Bank (ECB) would have to stop talking and do something.’

Selective equity allocation

With equities, he said selectivity is key. ‘Earnings have not kept pace with a rising market but we can accept high valuations where there is enough spare capacity for that not to be an issue.’

The portfolio has outperformed its IMA Mixed Asset 40-85% peer group over one and three years, and with less volatility. Over one year the portfolio has returned 8.3% compared to 7.7% by the sector average. Over three years it has returned 20.9%, compared with 18.8% by the sector, with volatility of 8.6%, compared with 8.9% by the peer group.

One of the regions the firm has favoured for a while is Japan, accessed via hedged exposure to the JOHCM Japan fund. But the region has proved a drag on performance over the last six months.

‘Abenomics is “print until you get inflation and growth” and normally would cause the yen to fall, which we thought would be beneficial to Japanese companies and they would get a real benefit in export markets. What we need to see now is wage growth,’ Meadows said.

Buy: Exova: ‘It offers testing and calibration services, is at an attractive valuation within a growth market with the scope to make earnings-accretive bolt-on acquisitions’

Hold: Infrastructure funds: ‘These have moved to premiums, but the yield is still attractive for existing holders’

Sell: L&G Dynamic Bond Trust : ‘Because of the manager change and the fact it is an active strategy linked to the outgoing manager’

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