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Launched in December 2018, the New Capital Global Balanced Fund, rated 5 stars by Morningstar*, leverages the investment team’s 20+ years of experience in managing similar products targeting capital growth and capital preservation. The Fund is a balanced, multi-asset strategy rated category 4 per the risk and reward profile** equating to a medium level of volatility. The Fund is positioned to utilize and consume the full spectrum of EFGAM’s analytical resources across the full range of New Capital investment capabilities.
"At the heart of our approach is the Global Asset Allocation process. This macro-economic analysis allows us to frame our views and create the outline of our portfolio at the highest level, looking to determine our asset allocation." - Simon Hodges and Alec McNeil, Co-Portfolio Managers.
Co-Portfolio Managers, Simon Hodges and Alec McNeil share a few thoughts on the Fund and their outlook for balanced strategies for the year as they celebrate the Funds’ three-year anniversary.
Why did you decide to launch a fund version of this product?
Having managed similar products for private clients, we wanted to open this open-ended structure to be able to offer our experience as private wealth managers alongside our institutional investment capabilities within our asset management arm, New Capital.
In a nutshell, can you describe what you do?
Our job, as the Fund’s portfolio managers, is to blend the different aspects of the investment process, namely top down asset allocation, bottom up security selection and risk management analysis. The latter is to ensure our understanding and assessment of the factors within the portfolio are clear and that our asset allocation is reflective of our view on short-term market movements.
How would you describe the New Capital Global Balanced style?
The ability to have a repeatable investment process in place is a key common denominator across the full range of New Capital funds; the approach we take to managing the Fund is no different. For us this means aiming to create consistent and repeatable performance. At the heart of our approach is the Global Asset Allocation process. This macro-economic analysis allows us to frame our views and create the outline of our portfolio at the highest level, looking to determine our asset allocation. In terms of the equity component in the portfolio, we have a bias towards quality growth companies. We believe that these are the ‘earnings compounders’, stocks that have the potential to generate free cash over the long term, have a dominant or disruptive effect within their industries and ideally are positioned to take advantage of secular trends that support a consistent and forecastable return. We also seek quality companies from within the cyclical universe, where we see the ability of proven management to maintain pricing power and a defensible industry position. Our fixed income approach focuses on relative value utilising in-house process developed over the past twenty years. Finally, our risk management process focuses on the short-term rather than a longer-term strategic view. Here we concentrate on currency exposures, look to ensure our factor positioning is appropriate and if deemed necessary incorporate portfolio protection.
What have been the main challenges and successes of managing the Fund over the last three years?
Managing the Fund through a global pandemic has without doubt been both the biggest challenge and biggest success over the last three years. We entered the depths of the first quarter of 2020 having the made the decision in late 2019 to protect part of the portfolio’s equity value with a derivative overlay. As we bounced off the March 2020 low, we were encouraged by our strategy team’s analysis of the environment to hold large weightings in quality growth stocks. As we entered the summer months, however, our tactical process pushed us to increase the exposure of value factors via call options to hedge out the risk of market rotation.
As our strategic view reflected on the beginning of the end of Covid after the vaccination rollouts in late 2021, we began to rebalance the portfolio towards a more equally weighted allocation of growth and cyclicality. Looking forward we believe that we face similar challenges as we attempt to filter out the noise emanating around inflation.
What is your outlook for 2022?
As we have seen from the weak start in equity markets so far this year volatility in our view will likely continue and increase during the rest of 2022. The changing regime from loose monetary and fiscal policy to tighter conditions will likely lead to more uncertainty in some economic respects despite the onset of the recovery. Inflation is a product of economic recovery and Covid related supply-side dislocation. The latter is likely to slowly unravel this year, and demand will be more robust with vaccinations extending around the globe. We think companies with pricing power are likely to be better performers. However, we think that market leadership will oscillate between worries about central bank monetary policy and the appetite of consumers and businesses to spend.
Our strategy will likely reflect the broader global economic activity and the fall in US equity market influence on global market indices. Emerging markets look relatively attractive after several years of underperformance. We think it will be too early to close our underweight position to bonds this year; we believe equities remain better value against a background of higher growth and inflation.
*Overall Morningstar rating within the Morningstar category, GBP Allocation 40-60% Equity as at 31 January 2022.
** As detailed on the corresponding KIID documentation
