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MPS Investment Committee: Paul Muir, Tatton Investment Management

MPS Investment Committee: Paul Muir, Tatton Investment Management

Paul Muir, head of fund research at Tatton Investment Management explains why they're backing UK equities amid Brexit chaos

'Our investment committee is central to our investment process, and at the time of writing, we are in the latter stages of preparing for the next committee meeting.

The investment process at Tatton is very collegiate in its approach. Our asset allocation and fund selection decisions aren’t made in isolation or by any one individual. The committee reviews our thinking, risk management, drift and performance across our strategies to ensure formal accountability for our stewardship of investors’ portfolios.

Preparations for client pre-meetings and actual meetings are intense to say the least, as our analysis of the global economy and our prevailing central case is put to the test. We don’t adjust our portfolios on a fixed calendar date, but rather when we think it’s appropriate, so the decisions we make in between committee meetings are also tested (with the ‘benefit’ of hindsight).

A feature of our investment process is that our allocation decisions are made on a global macro basis and then applied to our portfolio strategies, be it the active, passive, core (a blend of both) or ethical. Fund selection is led by our aim to match our tactical allocation decisions and outlook with suitably constructed portfolios.

With that in mind, our central case for 2019 will be re-examined.

A sunnier forecast

Our view, in summary, is that continued economic growth will lead to a rebound in earnings growth. Both are impacted by suppressed global liquidity caused by tightening monetary policy, which has also been driving some unnerving volatility. In effect, the hangover of quantitative easing that brought returns forward has reduced returns potential.

The US dollar is more likely to weaken compared with its performance in 2018. This would encourage global trade markets, particularly emerging markets, which would be supported by US president Donald Trump and China resolving their trade war.

We’re back to slow but steady growth, interrupted by previous post-correction market patterns.

Closer to home, president Trump’s policies pose a real risk to EU trade, which could also be hugely impacted by a no-deal Brexit. However, Tatton’s view since the referendum has been that the probability of a no-deal Brexit was and is overdone.

It was clear to us that no-deal Brexit fear was having an elevated impact on markets, playing out by UK equities being sold off to attractive valuations. Our response was to close our previous UK equity underweight position and buy the Axa Framlington UK Mid Cap fund.

Responding with discipline

Our fund research process at Tatton is to source the investment that fits our tactical allocation view. Therefore, in terms of the UK opportunity we identified, fund selection is based on our level of confidence in the manager being able to maintain the discipline in their process to meet our objectives.

Chris St John (pictured), the manager of the Axa Framlington UK Mid Cap fund, has impressed us by sticking to his mandate as a mid cap manager and not being tempted to chase performance by adding smaller stocks, unlike some others. He isn’t rigid in the stock selection process, enabling him to have a decent mix of growth and value-oriented companies.

The lack of stock screening appealed to us, since fundamental or quant-based selection can create a persistent bias one way or the other. This could be dependent on how Brexit ends, which would defeat the opportunity we identified.

St John also utilises a mosaic theory and many multiple company meetings, even if the companies are not mid cap. That, in our view, provides insights into threats and opportunities for his stocks.

The portfolio itself is a mix of domestic and international stocks and covers most Brexit scenarios, and, with St John in the driver’s seat, it has been performing well.'

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