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 week our interviewee is Cormac Nevin, fund manager of the Morningstar 4-star rated YOU Multi Asset Blend Balanced fund.
Which Sector Shows the Biggest Promise in 2022?
After a torrid year for many asset class returns across the board, many segments of our investable universe look considerably more attractive than they have done in recent years.
While the uncertain economic environment means that we are relatively close to our Strategic Asset Allocation and do not have large Tactical Asset Allocation positions in place, we do favour equity markets such as the UK and Japan. Both are trading on attractive forward valuation multiples relative both to other markets and their own history. MSCI UK is over 1.5 standard deviations cheap on a forward price/earnings basis, while MSCI Japan is approaching 1 standard deviation cheap.
On the Fixed Income side, from 2020 to 2021 we were focused on high yield, CNY [Chinese yuan] duration and short-dated global inflation-linked exposures given our views on elevated inflation coming out of the pandemic. We have now become far more constructive on global government bond exposure, and have been extending duration and moving up in quality in recent months.
What's the Biggest Economic Risk Today?
We are long-term investors and believe in constructing globally diversified multi-asset portfolios for our end clients. Within this context, the driver for our increased appetite for quality global duration as illustrated above has been our view that central banks - in particular the Federal Reserve, European Central Bank and to a lesser extent the Bank of England and Bank of Japan - are driving the car via looking in the rear-view mirror.
They are focused on the most lagging economic indicators to measure the success of their policy framework (eg CPI and Unemployment data) and continue to aggressively raise interest rates into an increasingly dire economic landscape. In our view, a higher cost of capital will do nothing to solve the largely supply-induced inflation issues we face, and indeed will likely discourage the investment which would have provided a solution.
Describe Your Investment Strategy
Our investment strategy is focused on constructing attractive multi-manager blends in order to control risk and optimise alpha. This involves significant quant inputs, which we build in-house, as well as frequent qualitative manager research and analysis. We like to establish long-term relationships with truly unique active managers and then knowing when and how to deploy these managers is critical. We monitor the underlying markets and portfolios closely and are constantly on the look-out for what we think could be asymmetric payoffs.
Which Famous Investor Do You Admire?
This tends to ebb and flow. Besides the G.O.A.Ts (Buffett, Munger, Druckenmiller, Soros etc), an investor whose research I find particularly fascinating at the moment is Mike Green at Simplify Asset Management in the US. His research on how price-inelastic market participants, in the form of passive investors, have fundamentally impacted market structure is one of the least discussed but most important market phenomena I can think of.
Name Your Favourite "Forever Stock"
While we don’t invest in single stocks, I am heavily invested in shares of our Multi-Asset Blend Growth Fund - I might be biased however.
What Would You Never Invest In?
See question 9 (on crypto).
Growth or Value?
Both! Our process is centered around combining managers who generate returns in different ways and different points in time. This often results in a blend of some combination of growth, value, quality, small cap etc styles. The trick is to hold the best manager in each style and blend them to produce consistent risk-adjusted alpha across a variety of market environments.
House or Pension?
Despite owning a flat in Tooting, I do think the exorbitant cost of housing in the UK is a major impediment to higher GDP growth. Whether a given government is able to stomach the political costs of lower house prices remains to be seen, but I would want to be invested in a pension that offers significant diversification vs UK property.
Crypto: Brilliant or Bad?
Money-weighted returns for the average crypto investor speak for themselves, as does its efficacy as an inflation hedge or store of value.
What Can be Done to Improve Diversity in Finance?
Increased equality of opportunity.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We don’t tend to engage directly with companies, but we certainly have had a range of positive and negative experiences with managers which have always served as learning experiences.
What’s the Best Advice You’ve Ever Been Given?
A well formatted spreadsheet is its own reward.
What Would You be if You Weren’t a Fund Manager?
Historian perhaps, I am a big history nerd.
