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How Berry beat the market for 10 straight years

How Berry beat the market for 10 straight years

Berry Asset Management’s Defensive strategy has now passed its tenth anniversary, having delivered a positive return in each of those years and achieving 75.8% growth for investors over the decade.

The Berry Defensive strategy was launched in June 2002 at the tail-end of the post dotcom crash, into what chief investment officer Mark Robinson (pictured) calls a ‘fairly benign’ environment by current standards. 

‘Any money we had in equity markets was doing quite well, any money we had in bonds was doing well and even cash was earning,’ Robinson said. ‘They were relatively straightforward investing conditions, not just for defensive strategies but for any strategies.’

From 2002 to 2007 the portfolio held its highest weighting to corporate bonds, helping along a 10.2% return in the year to June 2006, and a 6.3% return to mid-2007. Strong performers include the Citywire Selection pick M&G Corporate Bond fund and the Newton Global Dynamic Bond fund – the latter of which is still in the portfolio.

‘Paul Brain’s [Newton] fund has done exceptionally well; these funds that are able to navigate and manoeuvre themselves to take account of what’s going on are very important,’ Robinson said.

Large allocation to structured products

Meanwhile, half of the portfolio was invested in hedge funds and structured products. Favourites from back then included a Close Brothers’ ‘zeroes’ product and Merrill Lynch’s Step Income and Growth.

‘Close was one of the very first into that closed-end structured market and we had one of those in the portfolio,’ Robinson said. ‘Merrill Lynch and their structuring team brought traded structured investments to a new level.’

Choice was limited in the hedge funds market back then, but Berry says exposure to portfolios managed by GAM and Liberty Ermitage featured in the portfolio and performed well.

While the portfolio was providing a steady run of returns – 13.7% in the first three years and 21.2% over the first five – executive chairman Jamie Berry accepts that some investors in the defensive mandate might have felt as if they were missing out.

‘From 2002-07, the issue with managing defensive mandates was people who had committed themselves probably felt like they weren’t full participants in the party,’ Berry said. ‘The patience of investors who had a defensive approach was rewarded, but they had to wait a while.’

Following the 2007 market fall, cash was raised up to 30% by the end of 2008 with positions in hedge funds and equities cut. This included a 20% position in a short-dated gilt on the back of bank solvency concerns, and so the portfolio managed to eke out a 0.2% return in the year to June 2008.

Conventional long-only equity exposure was at a tiny 6%, invested solely through the M&G American and Lincoln Far East funds.

Since then, the portfolio has been orientated towards ‘all weather’ funds, and Berry highlights the Insight Absolute UK Equity Market Neutral fund, a Citywire Selection pick, as one that has almost delivered year on year returns. 

‘I know a lot of absolute return managers have not delivered the goods, but Insight has,’ Robinson said. ‘Just knocking out small returns every year is the Holy Grail I guess, and very few funds have actually achieved it.’  

The portfolio has also had a small weighting to Asia through the Schroder Asia Total Return fund in recent years.

‘It hasn’t been the best performing fund in a rising market but it has certainly protected on the downside and has delivered some exceptional returns,’ Robinson said.

A 5% position in gold was taken in June 2010 at a price of about $1,235 an ounce, and this has been raised to 7% currently. Robinson expects the price to move higher still, and hopes the precious metal will provide strong protection against the rise in inflation he foresees.

‘If we look ahead at the inflationary pressures that are building, we think inflation will be the by-product of this massive monetary easing,’ he said. ‘So having positions in gold and index-linked bonds is the right place to be.’

Today the portfolio has 20% exposure to equity markets, with a tilt towards the UK accessed through the Artemis, Franklin Templeton and Neptune’s Income funds. ‘Those are solid income paying funds,’ Robinson said.

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