Ben Yearsley: Midas can rediscover its winning touch
Saturday 30 April 2011
It is always interesting to see fund managers' reaction to a period of poor performance. It either leads to obstinacy and a period of "sticking to their guns", or to a period of soul-searching and an admission that changes need to be made. With Midas Balanced Growth and Midas Balanced Income it fell into the latter camp.
For a number of years Midas was the company no one had heard of apart from a select few in the City. Founded by four partners, including Simon Edwards and Alan Borrows, Midas started life managing money for the Merseyside pension scheme, specialising in multi-asset investing. They set out to be the antithesis of a tracker fund. If they liked something, regardless of what it was, they invested in it. Government bonds, equities, overseas equities, fixed interest, property, structured products, alternative assets – you name it, they probably considered it.
The funds were successfully managed by Edwards and Borrows for a number of years, and performance up until 2007 was excellent. So much so they attracted a wider following. The combination of top performance and a diversified approach was clearly a winning one.
In the past, diversified portfolios have been able to weather recessions reasonably well, so in theory the funds should have been well-equipped to weather the credit crisis of 2007-08. Yet this was no ordinary crisis. Pretty much every asset class fell sharply, and in hindsight it was evident that the managers were carrying too much risk. The more esoteric holdings in the fund suffered from a lack of liquidity, and years of hard work and top performance were undone in the space of a few turbulent months.
In addition to this difficult period of performance, there was the potential upheaval of a merger of the business with Miton, another niche fund management house, to ultimately create MAM Funds.
At Hargreaves Lansdown we had always held both companies in high regard, and each was a successful, profitable business. However, as part of the merger process, a large amount of debt was taken on at precisely the wrong time.
Turn the clock forward to today and I am pleased to say that these issues seem to be over. After a fresh round of financing sought by the new managing director, Gervais Williams, the former smaller companies fund manager at Gartmore, the group is on a sound footing and highly focused.
The most recent chapter in this potted history of Midas is the decision of Simon Edwards to step down to pursue other interests. This is undoubtedly a blow because Borrows and Edwards have been the driving force of Midas over the years. Indeed, the two were co-managers of these funds. However, the appointment of Simon Callow as lead manager on Midas Balanced Growth, while Alan Borrows takes full charge of the Income fund, is a satisfactory outcome for investors. Whilst relatively unknown, Callow has been at Midas for nearly six years and his experience, combined with Borrows and the remaining Midas team, should bode well for the future. They also have the Reading-based Miton team, with whom they can share ideas and opinions on markets, funds and investments, as well as Gervais Williams, who adds a new dimension with his smaller company experience.
Arguably, Midas was the first true multi-asset fund management house, and for a long time it was the best. There are now many imitators, but it is very difficult being the master of all investments without ending up the jack of some, and I believe the Midas team are still one to back.
Going forward, Borrows admits that the funds won't be as racy as they were in the Noughties. Essentially they are looking to achieve consistent second quartile performance and returns of 7 per cent to 10 per cent per annum. Obviously there is no guarantee of this, but it is interesting to note the admission of the managers' shortcomings and desire to return to more consistent, less volatile performance.If the Midas team can deliver once more, these should be core additions to any portfolio for thelong term.
Ben Yearsley is investment manager at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more details about the funds included in this column, visit www.h-l.co.uk/independent
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