Stewart Cowley, manager of the Old Mutual Managed fund, tells Rebecca Jones how he is positioned moving into the new year.
Q What are the drivers behind the fund’s outperformance over the past five years?
The fund is run as a fettered fund of funds, with an asset allocation and currency overlay using index futures and currency forwards. Investors get access to fund managers such as Simon Murphy, Luke Kerr, Christine Johnson, Ian Heslop, Stephen Message and myself. Each one of these managers has produced outstanding performance in the past five years and that, combined with asset allocation calls at the margin, has produced the results you see today.
Q What is the fund’s strategy and how firmly have you stuck to it over the past five years?
We have been pro-equities, capturing the rise in the markets, and recently have become more negative on fixed income. We have been able to hold a consistent overweight position in US equities and also capture the rise in Japanese equities. Our UK exposure has been expressed through a high beta play using our mid-cap and smaller company capabilities. Both volatility and returns have been enhanced through our Global Equity Absolute Return (GEAR) fund and the Global Strategic Bond fund.
Q What do you do differently to your competitors?
The underlying managers contribute hugely to the success of the fund – they are all genuine market leaders in their particular areas. It is very rare that you have such a uniformly excellent group of people in one place for this length of time. We have also had a very clear read on the macro environment, which has allowed us to avoid some of the more obvious problems of the past few years. We have been pretty conservative, preferring to manage volatility rather than chase spectacular returns from time to time.
“ We have some insurance in place to carry us over into 2014 ”
Q Do you plan to alter your fixed interest allocation anytime soon?
We own Christine Johnson’s Monthly Income Bond fund, alongside my Global Strategic Bond fund. This combination of income and negative duration capability has turned out to be a very potent one, especially this year. These funds are actively managed and capable of performing in a range of environments, which is going to be useful going forwards. There is no need to change this.
Q You have a high weighting to cash. What is your reasoning behind this?
We have become increasingly concerned as to just how dependent the US stock market, in particular, has become upon the continuation of quantitative easing (QE) there. This policy will end. As we learned in the summer, any disruption to the process of money printing has wide ranging effects on the whole financial system. The Fed, whose communication policy leaves something to be desired, could reverse its QE policy at any time. For this reason, we have raised cash in the fund and bought S&P 500 put options to cover 10% of the fund at a cost of 0.2%, in order to carry us over into 2014 with some insurance in place.
Q What are the most attractive areas of the market right now and why?
We are concentrating on getting the asset allocation and macro calls right at this time. The underlying funds and fund managers have sufficient flexibility and skill to help outperform the stock markets, even if we go through a bout of instability in the New Year. The fixed income allocation has the ability to produce positive returns even as yields rise, while the put option will kick in if the S&P 500 declines below 1750. We also have a currency hedge of 10% in the US dollar, which should aid performance if we see the US economic cycle gather momentum.
The CV: Stewart Cowley
Stewart Cowley joined OMGI in 2009 as head of fixed income. He previously worked at BNY Mellon, where he was investment leader, global bonds, and a member of the global bond policy unit. He joined in 2000 from Hill Samuel Asset Management, where he was joint chief investment officer and head of the fixed interest team, having previously been global head of fixed interest at Invesco.
Percentage growth return over five years
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