12 May 2022
Every month we study the universe of funds in the investment marketplace to assess whether they meet our exacting standards and should be given the RSMR seal of approval.
The fund has two overarching investment objectives: firstly not to lose money in any rolling twelve-month period and secondly to grow assets at a higher rate than would be achieved by depositing them in cash. The key philosophy of the fund being capital preservation, the allocation of assets and stock selection are closely aligned and are not seen as separate functions within the team. The allocation is unconstrained by any index or benchmark weights and is instead based upon a holistic assessment of the risks and opportunities observed in the global economy and markets. The observed risks are translated into investment opportunities by identifying those asset classes that would stand to benefit from an occurrence of the risk events. The allocations may be geographic, sectoral or thematic, but are unconstrained by any index or benchmark. The fund invests in a broad range of assets including equities, bonds and currencies. The second part of the process is stock selection and is undertaken by the research team. The team has a global brief that cuts across sector and country boundaries.
The first stage is economic research which begins with a quarterly economic assessment, prepared by RLAM’s chief economist. This assessment covers all major economic regions and produces forecasts for the three key variables in each economy: GDP growth, inflation and policy rates. This is a key input to the forecasting model for short, medium and long-term yields. The model develops full yield curves for each economy and generates investment ideas that can be discussed by the team. Models are only one contributory factor in any decision on stocks. In addition, they consider stock specific factors that are vitally important, such as changes to indices and potential issuance. There are anomalies from time to time which can be exploited.
Significant value can be added through stock selection which allows them to take less aggressive positions at the duration level in order to achieve the expected returns. Strategic and tactical relative value opportunities are identified within each individual G10 market (intra market) and between G10 markets (cross market). The managers of the fund work with the rest of the Government Bond team on tactical trading opportunities as and when they arise in the market. All strategy recommendations are volatility adjusted to ensure the risk exposure taken by the portfolio is in line with client guidelines and performance objectives. The shorter duration version of the product follows the same initial process but selects from a pool of shorter duration assets.
The Artemis Corporate Bond fund is an unconstrained vehicle which can cover the entire universe and is shifted strategically to take advantage of the different stages of the economic cycle. Overlaying this is a tactical strategy to capitalise on shorter-term opportunities. The fund has a degree of flexibility but will mainly invest into investment grade bonds (those with a credit rating of BBB or above) with government bond exposure and an overlay strategy used to control duration positioning which can be +/- 2 years over the benchmark.
The fund invests in a portfolio between 75 -150 bonds and the investment process blends 'top down' macro-economic analysis with 'bottom up' fundamental evaluation of individual companies' bonds. The macro analysis involves building up a picture of the economic backdrop in which the companies operate.
RSMR rates this fund as a core option for investors seeking corporate bond exposure as the fund manager, Stephen Snowden has a good track record of outperforming his peers over the long-term. We believe that this is because the investment process is well defined but flexible enough to take advantage of opportunities as they arise.
The investment philosophy is based on the view that they can add alpha through judicious credit selection and a willingness to be active and flexible. In terms of being active, they will use both duration and credit exposure to assess the asset class. While they are flexible, they are never going to be inherently aggressive or defensive, or long duration or short duration. They do not have an absolute return mindset, but they do have a priority to preserve capital and mitigate downside risk through focusing on liquidity by investing in larger, highly tradable corporate bonds.
The investment process is built upon taking a holistic, highly repeatable approach with a view to ensuring appropriate positioning throughout the market cycle. A top down perspective is employed to inform on how much risk to take at any point in time. This includes top down credit valuation analysis. In addition, from a bottom-up perspective, they employ proprietary screening tools to generate signals of where to look across the universe. Fundamental credit analysis is key to the whole process and the managers’ backgrounds as high yield analysts is something they see as a key differentiator from their peers.
Launched in December 2017, the Federated Hermes Impact Opportunities fund is benchmarked against the MSCI AC World IMI (net) with a performance target of producing risk adjusted returns of 500 basis points per annum ahead of the MSCI ACWI IMI over a rolling 5-year period.
The fund focuses on constructing a concentrated, high active share portfolio of companies where the impact can be ascertained utilising 9 impact themes and over 20 impact KPIs. All stocks held must be able to be linked to one or more of the 17 UN SDGs with the 169 underlying targets of the UN SDGs used as well.
A considerable amount of time and resource has been deployed into the creation of the proprietary impact assessment that forms part of the overall investment process. Due to this, the management team are able to clearly articulate how the underlying companies in the fund are having a demonstrable impact within the nine impact themes and are able to stand with conviction behind the output (forming part of the Quarterly Impact Report). In addition to impact, engagement is an important part of the process, utilising the resource within the stewardship team EOS (Equities Ownership Services).
By its nature, the fund is high conviction, with a high exposure to small and mid-caps, and consequently is positioned to provide better performance where the markets are favouring growth. The fund may have a place as a small holding/satellite position in higher risk responsible portfolios, where the target investor is looking for clear demonstrable evidence of a positive impact.
Launched in April 2018, the Montanaro Better World fund aims to hold between 50 and 55 holdings with each investment having a target portfolio weight of 1%-3%. It is a small mid-cap focused global fund that invests in companies which make a positive impact on society or the environment. Originally launched as a Dublin domiciled OEIC, an onshore version of the strategy was launched in January 2020.
Originally launched as a Dublin domiciled OEIC, an onshore version of the strategy was launched in January 2020. The fund follows the same quality growth approach as other strategies at Montanaro with the key differentiator being the addition of an impact assessment. Montanaro sought external counsel from the United Nations as to understand how best to approach this and it is interesting they have not pursued solely the UN Sustainable Development Goals (SDG) but instead derived their own six high level themes that incorporate subthemes. The proprietary impact assessment that is undertaken by the analysts for each company does require linkage to an SDG, however, a target or indicator will not be required in all instances as these are not always applicable to finance.
For any stock to be included, it needs to demonstrate impact with the proprietary assessment completed which is then presented to the Sustainability Committee. Although internal in composition, members are from across the business with an interest in impact and sustainability. If a company is approved from an impact perspective it is assessed from a quality perspective and then presented to the Investment Committee, who are all portfolio managers. If this stage is passed, then the stock becomes part of the impact approved list. Third party oversight for impact is provided by Impact Cubed with an Impact Report published annually.
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The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.