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Investment Insights

Investment Insight, 06/08/2021

August 6, 2021 – Written by Nick Gait

Tideway held its first in-person Investment Committee, with all members present, in over a year, welcoming back TS Lombard’s Martin Shenfield to share both Macroeconomic and Asset Allocation insights. After a period, earlier in the year, of steady asset price rises across the board with relatively little accompanying news flow, there was much to discuss as James details in his piece.

The committee determined there were to be no changes in Equity allocation, with style diversification once again proving beneficial as growth style mandates comfortably outperformed their value counterparts after trailing for the previous two quarters. The most important decision made on this front was to rebalance position sizes back to target weights, which had not been done since November as the committee were happy to let winning positions run.

The effect of the rebalance, broadly speaking, is to reduce exposure to Equities and adding back to the lower risk Fixed Income positions, in particular short-dated Credit, which although performed well for its mandate, will not keep up with Equity markets during an uptrend.  Within the Equity allocation, value positions, which performed exceptionally well during the first part of the year were reduced with the proceeds being reinvested into the underperforming Asian and Emerging Market assets. The majority of reinvestment however, as mentioned above, was into Fixed Income funds. Assets were also redistributed within the Alternatives bucket from Schroder Global Cities, enjoying an exceptionally strong year, into the recently purchased Sanlam Multi-Strategy and Legg Mason Global Infrastructure funds.

There are however changes to report on the Fixed Income side, welcoming two new funds into the equation, Artemis Target Return Bond, and Vontobel Emerging Market Corporate Bond. The former is a lower volatility fund designed to protect capital, provide diversification to existing strategies, and offer the potential for returns in a rising rate environment. The latter is a higher risk strategy offering clients exposure to debt securities in emerging market companies. It offers a high yield with a duration of just four years. The common theme within these two strategies is to minimise duration and the effect of rising yields. To fund these purchases, positions within Artemis Corporate Bond, Sanlam Hybrid Capital and Credit were reduced with reduction of duration and diversification of style the primary motives.

Artemis Target Return Bond: Lower volatility alternative to Short Dated Credit – Target Return BOE + 2.5%. Duration of between -2 and 4 years.

–          Run by the same team who manage Artemis Corporate Bond. Stephen Snowden is co-manager and was kind enough to join us for a webinar earlier this year.

–          The manager has the necessary tools to make money irrespective of direction of interest rates; takes long and short positions in Credit as well as expressing views on rates and inflation. Will outperform vanilla Credit in a rising rate environment.

–          Team highly experienced in running absolute return strategies and protecting capital, having managed a similar strategy at Kames Capital. Strong historic risk adjusted returns.

–          Provides diversification to existing long only Fixed Income strategies and lowers overall portfolio duration.

–          Early adopter of the strategy has provided Tideway clients with access to the founders share class costing 0.30% versus the institutional share class at 0.40%.

Vontobel Emerging Market Corporate Bond: Higher yielding strategy with relatively low accompanying duration.

–          Provides the first exposure to Emerging Market Debt for Tideway clients, benefitting portfolio diversification. Broad Investment Universe with access to up to 80 countries.

–          Market inefficiencies provide opportunities for the vigilant manager

–          Higher risk/reward strategy with the potential for Equity like returns. Philosophically similar to Sanlam Fixed Income strategies believing high yields translate to higher long-term returns

–          Current yield of over 7% offering a structural risk premium to the rest of the market

–          With a duration of just four years, less affected than other Fixed Income funds when yields are rising. Total return affected more by spreads than yields.

–          Consistently strong risk adjusted returns versus peer group.

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