In favour / out of favour

In favour; if it ain’t broken…

There is always something going on in markets to talk or write about, but it isn’t always that interesting. Therefore, when sitting down to write  a market update I try and find subjects that are interesting or particular changes we have made in the Premier Miton Diversified Growth Fund. This update has been a bit of a challenge, we have not been very active in the fund and nothing dramatic has happened in markets.

Then it struck me; in all our literature that describes the fund and when I talk to investors, the phrase we constantly use is “active management” and we haven’t been doing so. You should not take that to mean a lack of interest or attention to the asset allocation or the holdings within each asset class; it is, in fact, the exact opposite. It has been a busy time; the macro-economic backdrop is very interesting, with plenty of data points to consider and we have been going through the corporate results season.

We have been concerned about the outlook for global growth following the sharp recovery we are experiencing. Those concerns were driven by the spread of COVID variants, the scarring in the economy left from last year and supply chain issues, all of which are coming to fruition. We are seeing data points such as retail sales and employment signalling that the recovery rate is slowing and forward looking indicators such as the Purchasing Managers Indices come off the boil. We have the fund broadly set up for this outcome, however, never being able to actually know what will happen meant that we had positions that would benefit if the opposite happened. But our core approach, particularly in the key asset class of equities, is to focus on companies that should do well through different economic and market conditions, which has borne fruit through the results season.

We adopt a similar approach in property shares, but have been adding to more cyclically sensitive companies at attractive valuations, and exposure to alternative investments plays a key part in the diversification and growth potential of the fund.

So, overall, given the backdrop and market conditions, it has been relatively inactive. However, we haven’t forgotten that we are active managers; the investment team meet regularly to discuss asset allocation and we have agreed to be inactive, keeping weightings the same. The fund managers for each individual asset class have not been trading much, but do so as required.

Having written this, something will surprise us and activity will pick up; but that is what active management is all about.

Out of favour; if it is broken, sell it

“Sell discipline” is a much used phrase in the fund management industry and it is often used to describe a discipline that is more of a review. In other words, if something goes wrong with an investment such as a bad set of corporate results, a strange price movement or an issue with a covenant on a bond, a review of the investment is initiated.

That is an appropriate course of action, but you don’t want to take too long over it. There is always someone who knows more than you and always someone who will act faster than you. The managers of the different asset classes in the Premier Miton Diversified Growth Fund are charged with knowing their investments very well, and they do. So when something does go wrong, they can analyse the issue quickly and knowledgably.

If it is broken, the best decision is nearly always to sell, rather than wait for it to get fixed or buy more at a lower price. You can always buy it back in due course. Just more active management.