In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This time our interviewee is John Stopford, manager of the Ninety One Diversified Income Fund, which has a Morningstar Analyst Rating of Bronze.
Which Sector Provides The Biggest Opportunities in 2022?
After a very long period of deleveraging, low inflation and depressed real and nominal interest rates following the global financial crisis, financials look well placed to benefit from higher rates, stronger nominal economic growth and the potential for private sector balance sheet releveraging.
What's The Biggest Economic Risk Today?
The US Federal Reserve looks to have left policy too loose for too long and is now desperately playing catch up. The risk is Powell & co. end up tightening too aggressively. To (mis)quote Janet Yellen, “expansions don’t die of old age, they get murdered (usually by the Fed)”.
Describe Your Investment Strategy
In the Ninety One Diversified Income Fund, we aim to deliver a consistent defensive total return driven primarily by a yield of around 4% by selecting equities and bonds which offer attractive income underpinned by resilient cash flows, and by actively managing the risk of the overall portfolio, targeting a “bond-like” level of volatility with limited drawdowns.
Which Famous Investor Do You Admire?
It might appear a little self-serving, but working with Hendrik du Toit, the CEO of Ninety One, for the last 25 years has been an inspiration. His ability to see the path ahead and take us all along with him, creating a phenomenal business in the process, has been a privilege to be part of.
Name Your Favourite "Forever Stock"
Forever is a very long time! Companies I would consider to be “forever” holdings are those which have a history and culture that has seen their competitive positioning growing over very long time periods, they are high returning profitable businesses that reliably compound value, they have portfolio and product depth, and they have shown capital allocation flexibility to pivot towards opportunities and stay agile as they grow. Three examples held in our Ninety One Diversified Income Fund are Diageo, Texas Instruments and Procter & Gamble.
What Would You Never Invest In?
Our focus is on finding investments which offer resilient income streams. We believe this gives us the best potential to deliver a consistent total return. Income tends to drive most asset class returns over time, even equities, and is more dependable than relying primarily on capital gains. As such we won’t invest in securities that pay no or a very low yields and we will tend to avoid securities with superficially high yields, where the cash flows behind those yields are flaky or at substantial risk.
Growth or Value?
We don’t have a style, sector or regional bias in our Ninety One Diversified Income Fund. Instead we take a global multi asset approach to searching out the best investments that offer resilient income and are attractively valued. Having said that, we think the next few years are likely to see higher nominal growth and less depressed real yields than has been the case since the global financial crisis. This seems likely to be more challenging for expensive growth assets and more helpful for cheaper value plays.
House or Pension?
Ideally, both. The investment environment ahead of us may be pretty challenging, with the possibility of persistently higher inflation and higher interest rates, against the backdrop of many markets appearing expensive. As a consequence, returns are likely to be less dependable than over the last 40 years, and pension assets will need to have the ability to compound returns above inflation, and pension managers will need to be able to adapt as the backdrop evolves.
Crypto: Brilliant or Bad?
Crypto is still maturing. It clearly has a big future and will almost certainly become more mainstream, but for now it is still the Wild West and too much driven by speculation to be reliably investable.
What Can be Done to Increase Diversity in Fund Management?
Diversity requires an environment that genuinely welcomes, encourages and recognises the contribution that everyone makes and actively looks to become more diverse. We have made some strides as an industry, and hopefully they will be self-reinforcing. We still have a long way to go, but I am optimistic that we are beginning to see real change.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We added Xinyi Solar to the income portfolios in Q3; however, this followed a period of engagement on carbon-emissions disclosures by the broader Multi-Asset team that began in 2019. As a result of the team’s engagement, the company now reports emissions data to CDP having not done so previously. This is a significant positive development because the first step towards companies decarbonising is to quantify and disclose their carbon footprint, and then to establish targets. Often emerging market companies are behind their developed market counterparts. Part of our stewardship approach is to work with the companies we invest in to improve their disclosures if they are lacking. Overall, we believe this demonstrates the importance of tenacity and patience.
What's The Best Bit of Advice You’ve Ever Been Given?
These lines from Rudyard Kipling’s “If” always resonate with me, “if you can meet with triumph and disaster, and treat those two impostors just the same”, as does one of Ninety One’s cultural phrases, “do the right thing”. Both are invaluable guides for anyone like me who is responsible for managing our clients’ life savings.
What Would You Be if You Weren’t a Fund Manager?
I am probably a frustrated historian at heart. I love reading books on political, economic, social and financial history. One of my all-time favourite books is the Great Wave, an 800 year history of inflation (more fun than it sounds), but there are many others. History shows us the importance of human psychology in shaping the future, and provides valuable context and parallels to current events.
