Barings CIO Michael Hughes has altered the group's investment process following a turbulent 18 month...
Barings CIO Michael Hughes has altered the group's investment process following a turbulent 18 months in world markets.
The changes have been designed to produce greater consistency in results by the group.
He said: 'We have reviewed and updated our philosophy, we have increased our research resources, incorporated our credit expertise into equity selection and enhanced the control process to take account of the style biases that clearly seem to be dominant.'
Out of a sample of 160,000 broker recommendations during 2000, the buy recommendations underperformed by 31%, according to Hughes, while the sell recommendations outperformed by 45%. In such circumstances, he said, it is hardly surprising that the group is increasingly moving towards more internal research, rather than relying on external sources.
In the past year, it has increased the number of investment professionals from 105 to 124, many of whom were brought in to strengthen Barings' research capability.
Speaking at the group's global investment conference for intermediaries, Hughes said that although there have been extreme market conditions in recent years, the validity of being growth at a reasonable price house has been strengthened by the experience.
He added: 'What we have learnt is that below average growth stocks can actually give you earnings surprise. Look at some of the utilities and how they have performed in the past two years. They are not long-term above average growth stocks but they have been able to generate an earnings surprise.
'The importance of earnings surprise is something upon which we have focused because that gives us the ability to have a better foresight and greater stock conviction.'
The evidence of the last few years has led Hughes and the fund managers at Barings to update the basic philosophy and re-define the opportunities set for stock selection. This, he said, gives managers the parameters where they can define the degrees to which they are prepared to pay for above-average growth.
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