Paul Sheehan, investment manager at WHIreland discusses the sense in safety and why they're protecting their portfolios.
'WH Ireland’s model portfolios are designed to express the firm’s central asset allocation views. The process highlights what are considered to be the most suitable collective funds for generating a long-term total return, with the emphasis on capital growth.
The funds selected will be operated by trusted managers who have a track record (2+ years) of generating positive returns. We will consider new funds on a case by case basis, although the managers will have to construct a robust case, based on an approach and process that has been successful in the past. Funds will have a strong philosophy that adheres to a core investment thesis and applies reasonable concentration in its holdings to benefit from high conviction ideas.
We communicate regularly with the managers at the initiation stage through to an in-depth due diligence process, then with regular follow-up meetings. We have recently strengthened our selection process through the addition of an independent third-party quantitative analysis. Factors screened for include performance, risk, liquidity, style, industry and geographic exposures.
Our central view is to select high quality funds and allow the embedded value within them to accrue to investors over the long term. However, we are highly conscious of risk and valuation, hence our portfolios are designed to identify pockets of value across the asset classes and provide positive returns without excess volatility.
The central theme in recent months has been a dampening of growth expectations across the globe, with consequent reductions in corporate earnings, and the value placed on these. As a concomitant, inflation expectations, interest rates and bond yields have all fallen. Central banks, who remain key players in events, have adopted a more dovish tone, softening their stance around policy and partially reversing their actions with regards to monetary tightening.
While we retain a strategic bias towards equities, our recent tactical moves have been designed to lock in long-term gains and introduce an element of portfolio protection. The weighting to alternatives in our balanced mandates has increased to 17%.
One key addition has been Investec Diversified Income, a defensive fund with an above average yield and a capital preservation objective, which should add value in the current challenging markets. This has complemented other investments in the sector, including the Polar Capital Convertibles fund.
We have reduced and consolidated our exposure to Japan, selling out of Schroder Tokyo, where manager change and a recent tail-off in performance have crystallised our thoughts. Conversely, we have increased emerging markets through Hermes Global. This is an actively managed fund that seeks out undervalued growth across a broad spectrum of geographies and sectors.
In addition, the managers consider environmental, social and governance (ESG) factors in their risk analysis, which we believe is an increasing focus for investors when making their allocations.
Gold performed well in the recent market sell-off, and for our more adventurous mandates, we reduced our exposure. We have continued to add the Troy Trojan fund, which again has a real return focus and an experienced management team.
We retain a constructive view of markets, but expect the recent pick-up in volatility to remain a feature over the rest of the year.'