Investment
Market Updates

Talking to the Talent, 28/05/2021

May 28, 2021 – Written by James Baxter

We know when some of you look at your portfolio valuations online, you stop at the summary page, and think Tideway have done OK – wow that’s good- or, what are they up to!?  We take that as a good sign that you are letting us worry about the detail.

Of course, Tideway pull the whole portfolio together but behind the scenes there is a significant team of talented fund managers, investing money at the grass roots level in shares and bonds. Our Horizon portfolios currently employ twelve different fund management firms and within each there are usually teams of 5-15 people engaged on a daily basis managing the underlying funds. So outside of the Tideway Team there are around 150 investment professionals engaged on your behalf.

One such team is the Artemis fixed income team lead by Stephen Snowden.  Like several large fund management businesses, Artemis run a franchise model providing all the back up and infrastructure a talented team need to run and grow their funds. This fixed income team is relatively new to Artemis having joined from Kames Capital in 2019; when we decided to invest it was based on their reputation as skilled analysts and portfolio managers not past returns of the current strategy. So far so good, according to FE Trustnet the Artemis Corporate bond fund run by Stephen is top quartile in performance since launch delivering roughly double the sector average return. As you can see from the graph below, it was the team’s active approach coming out of the crisis which contributed significantly to relative performance.

Stephen’s reputation as a straight talker and raconteur preceded him, so I was quite excited to spend some time last week chatting to him.  The call is about 20 minutes long.  It is the ‘un cut’ version and we take a little while to warm up so please persevere but it is quite a nice insight into how these guys think and in particular Stephen’s insights into:

·         Active management in bond markets and how he achieved those returns against a backdrop of very low bond yields in the bonds this fund invests in.

·         Liquidity in bond markets and how he exploits it

·         Active versus Passive investing in bonds

·         Why he thinks long term deflationary pressures will have the upper hand versus short term post covid inflationary effects (he gets a bit philosophical!)

·         Why as a professional fund manager he invests his own money with other equity fund managers rather than attempting himself

Along the way there are mouse traps, card games and other interesting analogies and explanations.  We did cut off the introduction from the sales manager, who apologised in advance that his star fund manager had not put on a tie…. nor had I.

Interview

We are aiming to do more of these so please do give us your feedback.  We will continue to work on our production values!

Sanlam High Income Real Return Fund

Finally, a quick note on the Sanlam High Income Real Return fund. Those who have been investing with us since we started will recognise this as the first fund Peter Doherty and I launched in 2012. It has had several name changes along the way, starting life as the Global Navigator Fund.  I have fond memories of getting together the first £8m to be invested and trying to sell it to German IFAs in Berlin, a presentation arranged by the fund platform and where my German speaking sister-in-law kindly offered to translate. Fortunately, a lot of the financial technical terms stay in English.

The fund has recovered well from the Covid volatility of a year ago and it sits at an all-time high level and according to FE Trustnet and has delivered just over 5% p.a. net of fees since we launched it. We won awards for its first year’s performance but it has not always been plain sailing. Early attempts to hedge the performance of the fund proved costly and more latterly we focused on a more ‘multi asset’ approach to offer high income yields and alternative exposures which has been much more successful.

However, Tideway private clients remain the majority unit holders and as it was competing with other larger funds with longer track records in Sanlam’s stable, we could see that it was not getting the marketing effort it needed to grow to reduce running costs and give us the better liquidity we had hoped for.  Having been in discussion with Sanlam, they have taken the decision to close the fund.

An official notice was made public this week and the official close date of the fund will be on 25th June with the fund no longer taking in new subscriptions as of last Friday. Should you wish to read the full communication, the official termination notice can be downloaded here.

We have been working closely with Sanlam to ensure the lowest costs possible to close out the fund which should see a negligible impact on the funds price from here. The portfolio has already been readied to create the liquidity needed to complete the closure without significant price implications and Tideway will ensure all unit holders are treated fairly as the fund closes.  

We will be letting you know how we intend to reinvest these funds in our alternative asset allocation in due course.

The Hare and the Tortoise, 11/06/2021

Investment Update, 14/05/2021