Turbulent times: new research identifies the equity managers that have protected your wealth

PRESS RELEASE
For immediate release
19 October 2015

Turbulent times: new research identifies the equity managers that have protected your wealth

The past few months have been a turbulent time for the markets. The Chinese stock market bubble has burst, reinforcing fears about the health of China’s economic model and what that might mean for global growth. More recently, the decision by the U.S. Federal Reserve to hold back on raising interest rates in September as it had previously guided, has fuelled global pessimism over the prospects for global growth and fragility of the financial system.

So where should investors turn in rocky times for equity markets? Options for cautious investors might range from fixed income, targeted absolute return funds, multi-asset funds and convertible bonds. But it is also the case that some equity fund managers have more defensive investment styles than others.

New research by leading investment and financial planning group Tilney Bestinvest highlights those equity fund managers who have demonstrated a high incidence of protecting their portfolios in months when the markets have fallen across their careers. The research looked at the track records of 353 fund managers or teams with tenure in a sector of at least five years in a particular sector*.

Jason Hollands, Managing Director at Tilney Bestinvest, commented, “Active equity fund managers have a much higher relative success rate in down months than up months. We found that on average 79% of active fund managers had outperformed their respective index most of the time during months when the markets fell while on average only one third of them outperformed most of the time in months when the markets they operate in rose. This is of course in part down to the fact that few managers are fully-invested at any given time as cash is coming in and out of the fund, so this liquidity provides buffer in tough times and a drag factor in a strongly rising market.”

“Yet it is also the case that managers will proactively, as opposed to inadvertently, use cash positions in tough times, and can take defensive positions. For example, in recent times many active UK equity managers have been avoiding commodity stocks and companies with high exposure to China and emerging markets, which we believe is one of the major factors that has resulted in the vast majority of active UK equity funds outpacing the returns of index trackers over one, three and five years. The latter have been fully exposed to under pressure mining and oil and gas stocks.”

“A notable example of a manager prepared to tactically allocate to cash is JO Hambro Capital Management’s John Wood who we calculate has beaten the market 77% of the time during down months over an identifiable career spanning more than 13-years running funds in the UK All Companies sector at Newton and latterly JO Hambro. Mr. Wood has been warning for some time about the risk of a “financial tsunami” and accordingly positioning his fund very defensively. At the end of August the fund was 17.6% in cash.”

Hollands added, “A different approach has worked successfully for duo Anthony Cross and Julian Fosh who co-manage the Liontrust Special Situations, UK Growth and UK Smaller Companies funds. The team feature in our research as having successful defensive track records in down markets in both the UK All Companies and UK Smaller Companies sectors. Their investment philosophy, which they called the Economic Advantage process, is to focus on companies that have a durable economic advantage that provides resilient performance throughout the ups and downs of the economic cycle. This might include ownership of intellectual property, such as patents, strong distribution channels that are difficult for competitors to replicate and a high degree of recurring earnings versus transactional activity. The approach has clearly been successful with very consistent outperformance and a strong record for capital preservation in tough markets.”

“With markets having sold off aggressively in recent months, investors face the conundrum of deciding whether to add to their portfolios while markets are weak while also being mindful about the potential for further volatility in the near term. Investing with managers with strong defensive qualities might prove a sensible way to access the markets.”

- ENDS –

* For the purposes of analysing manager career records and evaluating the success of investment decisions we have stripped out the impact of fund costs. Where a manager has run more than one fund with the same sector at the same time, we have blended the track record.

Tables of most defensive equity fund managers

UK All Companies

UK Equity Income

UK Smaller Companies

Europe Excluding UK

Asia Pacific Excluding Japan

Japan

North America

Press contacts:

Jason Hollands
Managing Director
0207 189 9919 / 07768 661 382
jason.hollands@tilneybestinvest.co.uk

Gillian Kyle
Senior Associate
0203 818 6846 / 07989 650604
gillian.kyle@tilneybestinvest.co.uk

Important Information:

The value of investments, and the income derived from them, can go down as well as up and you can get back less than you originally invested. This press release does not constitute personal advice. If you are in doubt as to the suitability of an investment please contact one of our advisers. Past performance is not a guide to future performance.

Different funds may carry varying levels of risk depending on the geographical region and industry sector(s) in which they invest. You should make yourself aware of these specific risks prior to investing.

About Tilney Bestinvest

Tilney Bestinvest is a leading investment and financial planning firm that builds on a heritage of more than 150 years. We look after more than £9 billion of assets on our clients’ behalf and pride ourselves on offering the very highest levels of professional client service with transparent, competitive pricing across our entire range of solutions.

We offer a range of services for clients whether they would like to have their investments managed by us, require the support of a highly qualified adviser, prefer to make their own investment decisions or want to take more than one approach. We also have a nationwide team of expert financial planners to help clients with all aspects of financial planning, including retirement planning.

We have won numerous awards including UK Wealth Manager of the Year, Low-cost SIPP Provider of the Year and Self-select ISA Provider of the Year 2013, as voted by readers of the Financial Times and Investors Chronicle. We are pleased that our greatest source of new business is personal referrals from existing clients.

Headquartered in Mayfair, London, Tilney Bestinvest employs almost 400 staff across our network of offices, giving us full UK coverage, and we combine our award-winning research and expertise to provide a personalised service to clients whatever their investment needs.

The Tilney Bestinvest Group of Companies comprises the firms Bestinvest (Brokers) Ltd (Reg. No. 2830297), Tilney Investment Management (Reg. No. 02010520), Bestinvest (Consultants) Ltd (Reg. No. 1550116) and HW Financial Services Ltd (Reg. No. 02030706) all of which are authorised and regulated by the Financial Conduct Authority. Registered office: 6 Chesterfield Gardens, Mayfair, W1J 5BQ.

For further information, please visit: www.tilneybestinvest.co.uk