You're listening to Strictly Business Podcast with Lindsay Williams.
Welcome, and today we are in conversation with Ian Cunningham, Portfolio Manager for
the 91
Global Strategic Managed
Fund. I don't know how to introduce these podcasts anymore because every single sort
of theme is the same.
It's been such an eventful first quarter, Ian.
I mean, it escalated once the Trump tariff announcement, Liberty Day or whatever it
was called.
So how has the fund performed against this backdrop?
And what's been the detractor and what has been the contributor or contributors and
detractors to your
performance?
Hi, Lindsay.
Yeah, it certainly has been a volatile first quarter and then obviously a lot
more volatility through the first half of April in
particular.
I think as we look at things as we stand today as we're speaking,
so the US equity market is down.
A little over 10% year-to-date.
The strategy Global Strategic Managed is down in the region of 2.5% on a
year-to-date basis.
The detractors within the portfolio have generally been U.S.
equity positions, which have been hit sort of the hardest by, as you say,
Trump's Liberation Day and the push of the tariffs, and then obviously some of the
other things he's been doing in terms of
jostling with Jerome Powell of the Federal Reserve.
We've seen positions in some other equity markets internationally doing better.
So some of the positions we have in European equities and equities in areas of
Asia, particularly Hong Kong,
have performed more strongly and are up on a year-to-date basis as of today.
But it was principally the U.S.
equity positions that have detracted.
And then we've seen some quite strong performing positions in other areas of the
portfolio, so across the currency complex.
So you'll know the dollar has weakened quite sharply.
So the portfolio has had good exposure to the likes of the euro, the yen, the Swiss
franc, which have all risen quite strongly.
And it's had a very healthy exposure to defensive government bonds with limited
exposure to credit markets and short-term
government bonds in particular have risen in value.
How do you approach your day these days, Ian?
Do you get in in the morning and say, goodness me, this is exciting because I've
got so much choice and flexibility?
Or on the other hand, do you sit down at your desk and say, oh, no, not another
day.
of unpredictability on the macro and the micro level.
So my nerves are a little bit racked.
How do you view it?
And given the likely, in some people's eyes, end of US exceptionalism,
is this finally the time for global balance funds and specifically your global
strategic managed
fund to shine?
Yes.
I mean, ultimately, we've seen very different market conditions over the last
couple of years.
And I think that the...
The toughest conditions we've seen for a diversified global balanced portfolio was
the
environment we saw about just over a year ago in 2023, where basically you were
seeing strongly rising
US equity markets driven by a very narrow cohort of stocks, which we all now know is
the Magnificent Seven.
I think ultimately, as we go forward,
there is significant efforts to to reorder the international trade.
geopolitical landscape by the US administration.
And there's going to be a lot of living by sort of tweet or truth social.
So we're going to see a lot of volatility.
And I think ultimately, a strategy like global strategic managed is sort of in a
better position to be able
to deal with that.
We have a lot of flexibility we can use from an asset allocation perspective.
We've held a lot of dry powder coming into this.
So we're able to take advantage of opportunities as and when they when they
turn up.
And we think as well.
in terms of what's happening with the US dollar.
The US dollar has been very, very strong in the last few years.
And that is as weighed on total returns for a portfolio like Global Strategic
Managed, which has more international exposure like yen,
euros, for example.
And we think we're likely past the sort of the peak strength in the US dollar for the
time being.
I mean, that can add more of a total return tailwind.
for this particular strategy as opposed to the prior headwind it has been for recent
years, as we've seen a lot of dollar strength over the last couple of years.
So as you say, ultimately, volatility is far more interesting,
presents a lot more opportunities versus some of the conditions we've seen in prior
years where we've just seen sort of a narrow cohort of stocks driving markets
higher while everything else struggles or languishes.
I looked at your fact sheet, which was valid till the end of March.
You had an allocation of 66% to global equities, 30% exposures to defensive fixed
income.
What's your current position?
Because I would imagine since the end of March, it's been almost like a lifetime,
and things may have changed a bit.
Can you confirm or deny that?
Yes, things have changed a little bit.
We have, so immediately after the tariff announcements, we did take a bit of the
portfolio's equity exposure down.
The market didn't react.
much initially.
So equities were nudged down closer to the long-term average of 60%.
We have taken advantage of adding back some equity exposure, as we saw markets
sort of come off quite considerably.
We did that particularly in areas like Hong Kong,
where we see the Chinese providing more of an explicit policy put for financial
markets out there.
And also the Chinese are detailing quite a significant pivot towards stimulating
consumption in the
coming year or year or two.
And then elsewhere, we've reduced some exposure to things like Swiss francs,
which have rallied incredibly strongly.
In recent times, we've taken the portfolio's position in gold out, which
has been rallying very, very strongly.
And ultimately, I think our central scenario is we're going to see a lot more
volatility and the
portfolio does maintain.
a very healthy exposure towards defensive government bonds given although credit
spreads have widened a little bit we think credit spreads are still a
bit too tight given the prospective volatility and environment we're going to
be in in the next couple of quarters but ultimately
we'd anticipate that that sort of exposure to defensive government bonds can be
rotated elsewhere
into higher return seeking assets as and when the time is All right.
I spoke about flexibility and so much choice.
And that was sort of the exciting part of your day.
If you're an optimist, if you're a glass half full sort of bloke.
And when there's times like this, Ian, of course, opportunities do pop up.
Where are you seeing them?
If you can be relatively specific, where are you looking to add more?
Where are you looking to initiate new positions?
Is it geographical?
Europe, UK, China, India, etc.
Tell us more.
Yes, I think, I mean, if we go across the asset classes from a currency perspective,
we would expect the US dollar to sort of continue its path of weakening here.
But I see things don't move in a straight line.
It's moved very sharply in a short space of time.
So in terms of dollar weakness, but we'd be looking to fade any rallies that we see
in the dollar.
So adding exposure to international currencies, I think from an equity
perspective,
we're willing to remain pretty tactical in the next.
few quarters, we expect quite a lot of volatility coming through.
So we'll likely be adding exposure to equities into significant sell-offs and
then looking to maybe lighten up a bit
if we see material rallies.
And then across the fixed income spectrum, we do see opportunities in defensive
government bonds,
as we will likely see areas in Europe and the UK easing policy as a result of these
tariffs from
the US, as we'll see.
some economic weakness coming through.
And I think more specifically within equities,
I think some key areas of stimulus going forward are obviously there's a lot of
domestic stimulus coming
through in Europe.
And we do think this is an important pivot the Chinese are making towards
consumption.
So China has been heavily focused on an export model for the last couple of years.
So we know that China has been heavily exporting.
moving up the value chain in electric vehicles, in areas associated with green
energy.
They're pivoting back towards boosting consumption.
So there's a lot of interesting consumption plays related to China,
particularly domestically.
It's interesting if you take out the US Treasury bond market, for example, take
that out.
There are still some global developed market bonds and other bonds that offer
some sort of defense.
And sort of linked to the US dollar as well, it's quite extraordinary the way
that the US dollar,
normally a safe haven as US treasuries would be, coming under such pressure.
How does that affect your management of global currencies?
The challenge with the dollar is the dollar has become exceptionally
well-owned.
So most people's portfolios now are significantly skewed towards US dollars
and towards
US equity markets.
and When you start to see sort of reverberations and policymakers in the
U.S.
doing what are deemed to be quite wild things versus recent history,
people become less comfortable with owning those assets and they start to bring money
back home.
So that's one of the key reasons why we've seen the dollar weaken more recently.
And I think ultimately the U.S.
economy is slowing down coming into this, and it's likely to take a bit of a hit
from a growth perspective.
which will cause the Fed to ease through the second half of this year, we believe,
once they gain more confidence as to how high this short-term bump in inflation is
going to be within the US.
So we would say...
So it's going to be bumpy, but we would expect the US dollar to continue to
weaken, although it's likely overshot in the very short term.
And we'd be looking to fade any strength in the US dollar.
Bumpy translates to volatility, of course, and there's nothing guaranteed.
But one of the nearly guaranteed conditions that we're going to see over
the next few months, maybe even beyond,
is volatility.
This, of course, is, I suppose, ideal for you and the team.
We've got so many different ways to take advantage.
of it and you've also demonstrated the willingness to pull the tactical asset
allocation lever what i didn't mention earlier
on because i wanted to bring it into the very final question is that the fund is 30
years old and it's got a proud track
record but the last three years haven't been so great so what would your message
be to current holders in the
fund and other people other investors that may be having a look but at the moment
sitting on the sidelines
yes so So, ultimately, Global Strategic Managed Offers invests as a globally
diversified portfolio that's
aiming to deliver capital growth over the medium to long term by outperforming a
benchmark of 60% global equities,
40% global bonds, and it's aiming to do that over rolling five-year periods.
As you say, the last three years has been mixed.
So, 2022 was quite a strong year for the strategy versus its benchmark.
It outperformed quite considerably in a down.
on market for most asset classes.
2023, 2024 have been much tougher for the strategy.
It's been a tougher environment, and particularly 2023,
where the strategy was more defensively positioned in seeking to protect capital,
given the higher prospect of recession we deemed at the time.
That sort of affected early 2024 as well, and then the strategy over the past year
has been stronger.
We've made some improvements on the equity selection side, which have been a bit of a
drag.
And we remain confident in the strategy's ability to use flexible asset allocation
where it's added quite a lot of value
over time.
And as we say, volatile markets,
we expect to continue and we would expect to be able to use the strategy's approach
to flexible asset allocation.
And as I say, at the moment, there's quite a lot of dry powder to be deployed into
opportunities as and when we
see those.
emerging more fully within markets.
And I think one other force that's maybe a little bit underestimated for global
strategic managers is the degree
of international currency exposure that the strategy will have on average.
So exposure to currencies like the yen, the euro, the pound, the Swiss franc.
And in the last few years,
that's been quite a big headwind for the strategy in terms of total returns.
But as we've discussed, we sort of expect that that is beginning to change.
And we see that providing more of a tailwind for territorial returns for the
strategy.
Ian, great chat.
Thank you very much for your insight.
Ian Cunningham is Portfolio Manager for the 91 Global Strategic Managed Fund.
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