Emma Wall: Hello, and welcome to the Morningstar series, 'Why Should I Invest With You?' I'm Emma Wall and I'm joined today by Simon Evan-Cook, manager of the Premier Multi-Asset Growth & Income Fund.
Hi, Simon.
Simon Evan-Cook: Hi, there.
Wall: So I thought I'd start by asking you the question, are you an optimist or are you a pessimistic for 2016, because people seem to be falling very much into those two pole of camps?
Evan-Cook: Well, I'm glad you qualified it with 2016, because by nature I'm an optimistic, but probably at the moment I'm sort of moving towards pessimism a little bit. We're valuation-driven investors, so we'll start with that and the valuation of most asset classes currently looks unappealing. You'd say maybe a fair value if you're being kind, but in some ways, in some places it looks quite expensive.
So that's where we'd start – the pessimism starts, because as always, I mean, there always are macro troubles brewing. It wouldn’t be – it'd be quite scary if they weren't in a way. But the difference is now you don't have that cushion in valuations and some of the macro scares out there seem quite worrying and quite realistic. Had we had cheap valuations for that, you'd have prepared to take that risk and write them out. But with not a lot of fat there, it makes us a little bit worried, yeah.
Wall: Let's drill down then when we last met in July 2015, you said that you didn't have any direct exposures to China, although some of the funds that you owned had Asia exposure. Has that changed at all?
Evan-Cook: Still no direct exposure to China, no. It's the same situation really. We went through – so July, we had the August sell-off and the fund did extremely well during that sell-off. We had outperformed the peer group very well. It didn't really seem to dent our relative performance; and we had a great year in 2015 as well.
So we did have Asia exposure, but that didn't really seem to hurt as we certainly didn't have a lot of direct China exposure. That felt like us before that to being quite an uncomfortable bubble and it seems to have turned out that way certainly in August last year, and the first week of this year, it looks pretty unpleasant to me. So, no, we don't have any direct China exposure.
Wall: It's funny because the themes that we discussed last time continue to be the concerns of investors, although in that interim period, of course, markets have gone all over the place. The other thing we discussed was commodities. I mean, this time last year if you'd said, where can commodities go, people would have said, that they halved in 2014, I think they are going to stabilize and of course again in 2015, they pretty much halved again.
Looking at 2016, you said last time that you'd keep an eye on commodities and waiting for the right price. Presumably now things are looking more attractive from a value point of view?
Evan-Cook: They are more attractive. Within this fund, the growth and income fund. We have doubled in the sense that we have bought a smart materials funds and not direct commodities exposure. This fund itself invests in materials which are lighter, more efficient but have been linked to commodity prices, because they are substitutes for. So if the price of steel falls, you don't need the substitutes so much that the price of this fell, so we thought that was a good opportunity to buy into that.
But what you have got with this fund that you don't necessarily have so much for commodities is that regulatory tailwind that people are going to want to be more efficient, they want to cut down on pollution. So we think that's got some backing that maybe commodities don't.
But also further out the risk go, we run a global growth fund as well, which isn't maybe as conservative as the growth and income fund. We've taken a very small position in a highly active commodity equity fund in that. We're talking around 1%. So we're not betting the farm.
But our theory there is, I think there will be some companies that will come out of this okay, providing their balance sheets as strong, providing they are well-run. I wouldn't want to buy a market weighted basket. I wouldn't want to buy a passive exposure at the moment. I think it's important to pick out the bits out of the crisis that might well come out stronger than they went in.
Wall: So if China is still a concern and commodities is not quite there yet, where are you finding opportunities?
Evan: Well, certainly, we've done within the growth and income fund… We put a positioning in December is we've been adding long/short equity funds in there. So not quite market neutral, but getting towards that. So what we've done is, we've taken out a lot of beta. Now this isn't us trying to call markets, the way we view markets is that we try and work out over, let's say, the next seven years, what could you realistically expect from an equity portfolio. We think that's low currently because of valuations that maybe you should be expecting, if you do well, 6% a year from here.
Now that might be 6% a year literally or might be 6% with a big drop and then a high return from that. We don't know what the path looks like. So if it's only 6%, there is now an opportunity cost to putting in a long/short fund, which takes the beta out. We think we can make maybe 6% from these funds, too, without the market volatility along the way.
So at this point in cycle, that feels like quite a sensible move to us. I mean we put in a basket, so we've reduced manager risk. And again, we're talking maybe 5% to 6% in the fund. It's not a giant macro move, because we don't intend to make those moves.
Wall: Simon, thank you very much.
Evan: My pleasure. Thank you.
Wall: This is Emma Wall for Morningstar. Thank you watching.
