As the beautiful game’s latest global tournament kicks off, 7IM’s multi manager team muses who among the squad of third party funds in which we invest just might have the makings of starting on the pitch when the whistle blows.
The World Cup kicked off on 14 June. And while Russia is in the spotlight given the political backdrop, national football managers (apart from Spain) are only focused on which of their squad might start a match on the pitch and who will be in reserve. After all there’s always a risk of injury, no matter how much experience is there.
So, to get into the spirit, 7IM’s multi manager team shares its thoughts on a theoretical team set-up from the investments that 7IM regularly uses across its risk rated portfolios.
The referee wants to flag at this point though that any references to specific investments are included for information purposes only and are definitely not intended to be investment recommendations. And, of course, any line-ups may have to change in the case of an offside decision!
Following a favoured 5-3-2 formation, one such 7IM line-up could be:
In the goal
Sporting the usual number one shirt worn by goalies is the Royal London Cash Plus Fund. You need a reliable defence and cash is typically a good starting point.
The team believes that this fund is managed with an aim of delivering more than market cash rates, by investing in high quality bonds. It is seen as a strong defensive play for those that want experienced hands across a balance of money markets and short term bonds.
7IM is also looking to include a sweeper – not used as much in the modern game, this player can usually read the direction of play effortlessly and help mitigate potential risks. One choice for this would be the TwentyFour AM Dynamic Bond Fund.
Here, the selection is because the team believes that it’s an unconstrained long-only bond fund, which offers flexible exposures to bank debt, high yield, investment grade, sovereigns, emerging markets and asset backed securities. It aims to be an all-round performer that tries to deliver a performance across lots of different environments. It fits in well with our current concerns about interest rates. The fund holds floating rate debt, where payments rise alongside interest rates, and also looks to provide higher yields than conventional short dated bonds.
Meanwhile, it is the full-backs who often have to take on a more proactive role in supporting the team’s performance than used to be the case, while still adding a defensive quality when things take a turn for the worse. These thoughts led 7IM to consider the selection of the NN Global Convertible Opportunities and the Fair Oaks Income funds.
The convertible bond fund from NN offers investors senior unsecured bonds that are convertible into shares at a fixed price. They typically have short durations, offering downside protection with equity upside participation. 7IM likes this fund’s thematic approach, which allows for a focus on the big picture, rather than a tactical, traditional sector approach, given these often have a diverse set of return drivers.
Meanwhile the pick for the Fair Oaks Income is down to its structure as a closed ended investment company in the specialist debt sector that can focus primarily on high quality, US floating rate senior secured loans. This structure can prove useful as it can access assets despite the illiquid nature of the underlying assets.
Then we have to think about the centre-backs who essentially try to deliver when others around them are under pressure. They are there to complement each other, looking to provide support for one another throughout the match. For 7IM, key players include the F&C Global Equity Market Neutral Fund and the Angel Oak Multi-Strategy Income Fund.
The F&C Global Equity Market Neutral Fund is a systematically driven fund that has a dispassionate approach, reducing the risk of human error and is therefore a supporting member of the line-up. It is very much about absolute returns too, so is designed to not be too temperamental. Meanwhile, the team behind the Angel Oak Multi-Strategy Income Fund are specialist investors in residential mortgage backed securities. The view is that a stronger US economy and buoyant housing market make for an interesting opportunity in mortgage loans where we believe the default risk is low.
Who could make it in midfield?
At least one midfielder is there to help make sure that we don’t follow the typical direction of play, and aims to balance out attack and defence. For 7IM, funds that seek to offer this role include the Hermes Asia Ex Japan Equity. While Asian players are often seen as taking on more risk, this fund is more defensively run by a contrarian, who looks out for undervalued quality stocks. This leads to a differentiated portfolio, including investments in smaller businesses in Asia, rather than large global companies and typically has a value bias, an emphasis that 7IM currently likes.
Also potentially joining Hermes in the centre of the park is the Artemis UK Select Fund, which 7IM sees as a box-to-box addition with an unconstrained approach in terms of market capitalisation. Its ability to ‘short’ means it can often profit from falling markets.
Completing the potential midfield line-up is the Miton European Opportunities Fund, a new signing in 2017, adding some extra diversification to the team. This fund’s managers try to find companies ‘off the beaten track’ with great growth potential and the opportunity for medium-term earnings growth –hence hold a significant weight in medium sized businesses.
Helping to push forward for results
Like football, investing is ultimately a results-driven business, and so you want to include people you believe can put it in the back of the net. Two ideas for strikers, who are looking to consistently outperform their peer group, include the Baillie Gifford Japanese Smaller Companies Fund and the RWC Emerging Markets Fund, a pairing that looks to combines a small and fast (growing) option with a fund that aims to be in the right place at the right time.
The team sees Billie Gifford as a specialist in high growth companies, many of which tend to be innovative businesses targeting large end markets, making this a preferred ‘attack’ position. The fund’s stocks tend to have little sell side research, so they can seek out hidden gems. They are also able to exploit longer term trends such as Japan's changing demographics.
Last but definitely not least, as a potential final pick is the RWC Emerging Markets Fund. This invests across the full breadth of developing economies, looking for strong growth characteristics that have not yet fed through to the share price. The application of thorough macro research steers the fund away from regions where risk is underappreciated by the market and towards countries embarking on positive change, all the while still focussing on identifying great stocks.”Damian Barry and Tony Lawrence
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Seven Investment Management LLP is authorised and regulated by the Financial Conduct Authority and by the Jersey Financial Services Commission. Member of the London Stock Exchange. Registered office: 55 Bishopsgate, London EC2N 3AS. Registered in England and Wales number OC378740. The value of investments may fluctuate in price or value and you may get back less than the amount originally invested. Past performance is not a guide to the future. The investments may not be suitable for everyone and if you have any doubts you should contact your investment advisor. 7IM may hold positions in some or all of the securities mentioned here either in 7IM funds as part of widely diversified portfolios or via the third party funds in which we invest. Any reference to specific investments are included for information purposes only and are not intended to provide stock recommendation or investment recommendations to individual investors.