As the manager of our multi-asset funds I am not shy about my preference for defensive growth businesses that can generate through cycle returns and have benefited from investing in this style that has dominated returns, in particular in the UK since 2016. October though provided an example of how widened market leadership could impact returns as easier financial conditions, some bottoming in the manufacturing data and even the slightest bit of political progress on both Brexit and Trade Wars caused a reversal in the fortunes of fixed income markets, cyclical equities and the value of sterling.
Against that backdrop I have added, selectively, to existing property holdings and financial exposure during the previous quarter – both of which benefit from majority sterling earnings and it is these holdings that were at the top of the leader board during the quarter.
Whilst I would not want to call the end of the currency headwind on international earnings quite yet (especially should the 12th December provide some political clarity), I remain comfortable in the quality of the long term earnings that many of the businesses in the funds should be able to generate regardless of sterling moves over the coming years.
In the recent Rugby World Cup it was hard to fault the efforts of Eddie Jones and his men but when it came down to the crunch, the team fell short in the final without a plan B. Against an uncertain and volatile market backdrop it is important to prepare with a plan B, C, D and E. Whilst happy with the portfolio positioning against the current backdrop, should that change I am ready and prepared to tilt the portfolio as necessary. As an example there may be opportunities to add to some of the higher quality cyclical holdings that have struggled on the back of recent macro concerns – with PMI data below 50, Chinese data volatile at best and the political backdrop still uncertain, it feels too soon right now.
James Godrich
Fund Manager
