Tom Becket, chief investment officer at Psigma Investment Management, talks about staying consistent but current.
'Psigma has managed its MPS for nearly 14 years and, while the investments within the strategies have regularly changed, the philosophy behind the strategies and the core team devising the investment positioning have remained constant. Indeed, this was the first project I worked on when I arrived at Psigma in the summer of 2004.
At the time, the multi-manager, multi-asset approach we used was relatively uncommon in the private client and wealth management world. Our description of our process has always been an ‘institutional investment approach for private retail clients’.
Each of our three main strategies – Cautious, Balanced and Growth – have an inflation target, with Balanced having a target of CPI + 3%. Our view from the very outset of business has been that our clients should be able to judge our investment success over the long term by our ability to outpace a relevant benchmark – and that, for us, is inflation. Beating industry benchmarks should be a by-product of any successful investment process.
Our portfolios have always been weighted towards high conviction, macroeconomic ‘bets’ supported by intense microeconomic research. These portfolios have become notably more concentrated by their themes in the last few years, even though we remain highly diversified out of respect for challenging market conditions. We also have a deeply contrarian approach that has led to extreme overweight positions in Japanese equities over the last few years. At one point, we were four times overweight to Japanese equities (now double-weight).
Other recent conviction allocations have been European equities from 2012 onwards, although we have now reduced our allocation back down to neutral and a large allocation to emerging market assets towards the end of 2015, which we subsequently reduced.
Our current investment strategy can be best described as ‘neutral with a hint of caution’. We have progressed from being more ‘risk on’ at the end of 2015 than we ever had been previously – on the view that there were so many cheap assets on offer – to a more balanced current stance, through rotation of assets and a sustained programme of profit taking.
Our portfolios currently have a major bias towards active funds, whereas a few years ago we were much happier owning passive funds. Our view is that the ‘rising tide floats all boats’ rally is over and active managers should, hopefully, add value at this late stage of the ‘investment cycle’.
In fixed interest markets we typically avoid the dubious virtues of mutual funds and opt to create our own segregated funds. This gives us greater control over risk and liquidity, and the flexibility to be credit specific, which we feel is vital at this time.
The most recent changes to our portfolios have been to increase our allocations to deeply unloved gold equities, through the BlackRock Gold and General fund, for which we can see a major catch-up opportunity versus gold bullion, and the potential for protection should global geopolitical conditions deteriorate.
In addition, we have continued to source interesting opportunities in specialist fixed interest markets. We seeded a new fund from Semper Capital Management, which invests in ‘vintage’ US non-agency Residential Mortgage Backed Securities, one of the last-remaining bastion of value in global asset markets.
This position perfectly reflects our desire to find investments that can benefit from satisfactory economic conditions, while not investing in the – sadly – many available expensive assets.'