Ben Yearsley: Parsimonious McQuaker sees no reason to panic
Saturday 10 December 2011
Recently I have been blessed, if that is the right term, by visits from several multi-manager fund managers. One in particular doesn't get as many column inches as others, yet I believe he is worthy of mention. Bill McQuaker is head of multi manager at Henderson and his team (which includes the former New Star and Gartmore funds) currently has around £1.8bn in funds under management.
"Parsimonious" springs to mind when talking about Mr McQuaker. I am not saying he is a stereotypical Scotsman, but worrying about losing money on a certain position or investment is an important part of Henderson's process. That is not to say they don't take risks, they do, but in a controlled environment.
Rather than talking about a specific fund I thought it might be worth exploring Bill McQuaker's current view of the world. Turning the clock back six months, Mr McQuaker held the view that economic expansion would continue, which, mainly due to the European and US debt debacles, it hasn't. The team reversed their view at the end of July, believing the debt saga was affecting business and consumer confidence. This double header of debt and waning confidence means, in Bill McQuaker's opinion, western economies are at greater risk of slipping back into recession than at any time since January 2009. This led to a substantial repositioning of their portfolios. For example, within their more cautious fund the equity weight has fallen from 55 per cent to 40 per cent since mid-July. Not only has the weighting changed, but the composition of that 40 per cent as well. More has been invested with the likes of Neil Woodford, Adrian Frost, Nick Train and Angus Tulloch, ie more defensive managers. Overall, across the Henderson portfolios they are overweight in US and Japanese equities and underweight in Europe and the UK (marginally).
Similar to many fund managers, Bill McQuaker concedes being underweight in government bonds has been a mistake this year. The team have recently been buying some US treasuries and have bought other US dollar exposure through Thames River's Global Bond fund and the AXA Short Duration High Yield fund.
Looking at the wider picture again, Mr McQuaker expects the economy to deteriorate further over the short term. He is worried there is too much complacency in some emerging markets. He thinks India has an inflation problem, a weak currency and a deficit, twinned with growth problems, for example.
The elephant in Mr McQuaker's room, without falling into a cliché, remains euroland. The key question he asks is: what do the Europeans need to do to sort the problem out? I will preface his answer by saying he thinks there needs to be a faltering economy, market pressure and social disorder. He believes more, and larger, write-offs are needed, rather than the piecemeal offerings so far. He also thinks the ECB will start printing money and, interestingly, says it is legal for them to do so, if it is to keep inflation near their 2 per cent target. Finally, Germany, China and Japan have to start stimulating demand, similar to after the Asian crisis when the US effectively stepped in to stimulate global demand.
Bill McQuaker thinks this is an interesting time to be a fund manager and this is the hardest the team has worked in seven years! He suggests there is no need to panic or be trigger-happy when selling or buying investments. Instead he looks for warning signs, considering how to position the portfolio for certain events. He believes if turmoil does happen, ie the euro collapses, a great buying opportunity could ensue. Meantime he thinks equities remain cheap even if the economy slips into recession and that keeping it simple, ie buying Neil Woodford before buying UK gilts, is a sensible course of action.
The Henderson multi-manager team has the scale and resources to be among the market leaders. With Bill McQuaker (and Tony Lanning) they have excellent, under-rated managers at the helm.
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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