Ollie Smith: It's time to compare and contrast two very different investment strategies. And manager research analyst, Tom Mills, is here to help us do just that. In the spotlight today is Capital Gearing Trust and BNY Mellon's Multi-Asset Balanced Fund.
Welcome, Tom. What are these funds and what's the difference between them?
Tom Mills: Thanks, Ollie. Good to be here. So, Capital Gearing Trust, or CGT, is a long running investment trust. There's also an open end version called CG Absolute return. They follow the same strategy in their multi-asset vehicles that are focused on capital preservation and absolute returns, and they sit in Morningstar's flexible allocation category. Meanwhile, BNY Mellon Multi-Asset Balanced is a more traditional balanced fund, and it sits in Morningstar's allocation category of 60% to 80% equity, and it invests usually around 70% to 80% in equities and the rest in mostly bonds and cash.
OS: Brilliant. So, just sticking with Capital Gearing for a second, how does the management of that strategy work, and then, moving on to BNY Mellon, how does it contrast with that fund?
TM: Sure. So, Capital Gearing Trust aims to protect capital in the short term and produce equity-like returns over the long term, and asset allocation is the main driver of performance. Despite the trust's name, there's no use of gearing or derivatives. It aims to achieve the strategy by flexibly allocating between three main buckets, which are risk assets, which includes equity, property and alternatives, including investment trusts; real assets, which are primarily inflation-linked bonds; and thirdly, dry powder, which is a mix of cash and short-term bonds.
OS: Then with BNY Mellon, what's the approach there?
TM: So, the approach there is – it's more of a benchmark aware approach. So, the lead manager, Simon Nichols, who's part of Newton's multi-asset team, is focused on outperforming the fund's benchmark, which is the IA Mixed Investment 40%-85% Shares category. Essentially, it's more pay aware and a more benchmark aware strategy.
OS: We wouldn't be able to get through this video without asking about performance. So, it's worth just asking you how does performance compare and contrast, particularly in light of equity performance in the last year?
TM: Well, the funds have got quite different aims. So, looking at Capital Gearing Trust, for example, it's more of a capital preservation approach. And it's been very successful over time, and that's due to skillful asset allocation and avoiding large drawdowns which has been key to its strong track record. Whereas BNY Multi-Asset Balanced will move more in line with the performance of the overall category. But Simon Nichols, since he's managed the BNY Mellon Multi-Asset Balanced Fund from the beginning of 2018, he's been able to produce consistently strong relative returns, so ranking in the first or second quartile every year, which we think is quite impressive with the tough and changing backdrop that's been occurring since he took over the fund.
OS: In terms of strengths and weaknesses, I know that Morningstar's manager research team looks very closely at the strengths and weaknesses of each fund house and their respective teams. What are the strengths and weaknesses on these two strategies, starting perhaps with some Capital Gearing, then going on to BNY?
TM: Starting with Capital Gearing, Peter Spiller has been the portfolio manager for 40 years on the strategy, and he's got an excellent track record. Although, as you'd expect, succession planning is an important consideration. But we think that's well catered for in this case. So, over the last decade or so, Spiller has added portfolio managers Alastair Laing and Chris Clothier, as well as analyst support, so it's become a more team-based approach. We think there's a clear succession plan in place with the co-manager structure and that the team can continue implementing the strategy successfully. On BNY Mellon Multi-Asset Balanced, although there's also a team-based approach there behind the portfolio manager Simon Nichols, he's supported by the broader multi-asset team at Newton, but there's also a large team of analysts that he can lean on when selecting securities for the fund, and they follow Newton's team-based house approach. They are a valuable resource, and we think Nichols is able to make the most of their input.
OS: Thank you very much. For regular updates on Morningstar's mighty manager research operations, subscribe to our newsletter online. In the meantime, my thanks to Tom. I've been Ollie Smith for Morningstar.
