What is it about Scotsmen that makes them good fund managers? Some might say it is something to do with their parsimonious nature, which means they do not overpay for assets. The Scot in question in this instance is Bill McQuaker, head of equities at Henderson, and manager of several of its multi-manager funds. These invest in a range of specialist funds to form a one-stop portfolio, and each of his have been pretty good performers.
When Henderson bought New Star I did wonder whether this would herald the end of McQuaker's fund management career. New Star's own established multi- manager pairing of Mark Harris and Craig Heron came on board, and I was curious to see how the two sides could blend. It has now been more than a year since the merger, and actually the blend is rather good. It has meant changes on both sides and Harris and Heron have given up some of their more cautious funds to McQuaker.
One of the key changes from McQuaker's point of view is that he does not generally meet external fund managers any more. His view is that his particular skill is asset allocation, and Harris, Heron and their team are better suited to choosing individual funds. That is not to say he doesn't meet fund managers at all. His role as head of equities at Henderson means he has considerable interaction with its own fund managers, and for this it is important that he continues to run money himself, as he cannot then be accused of sitting in an ivory tower. The key question McQuaker always asks himself when managing his funds is "what is going to happen next?" followed by "how to profit?" and "how to protect?" He spends a lot of time thinking about why he might be wrong and the consequences of getting it wrong. In other words, he is always conscious about the risks in his portfolios and is not afraid to change his mind. As an example, he cites mid-2008 when he altered his view quickly that a recession was likely. This led him to take 15 per cent out of his equity weighting and buy bonds. It is nice to see a fund manager ready to make big decisions and back them up with action.
McQuaker currently sees a similar unfolding of events as in past recessions such as 1994 and 2004, and thinks a slowdown is natural after last year's rebound. He believes growth will ultimately resume through corporate spending, which will help avoid a double- dip recession. He also thinks there is a real willingness from policymakers to do everything possible to sort out the system, effectively meaning they would rather risk inflation than deflation.
Indeed, inflation is one of McQuaker's biggest concerns and he has a three-pronged approach to dealing with it. He owns gold shares (he might also buy physical gold soon), index-linked bonds and within the equity portfolio he has bought funds he expects to be beneficiaries of an inflationary environment. For instance, he has bought Asian bonds as a way of profiting from the appreciation of currencies in Asia, where he expects stronger inflation and higher interest rates.
For equities, he sees a lack of confidence among companies, which needs to be restored for them to start spending again. Having said that (and taking into account his view about avoiding a double dip) he is modestly overweight in equities presently, though he doesn't believe markets will deliver strong returns this summer, or at least until the majority realise a return to recession is not going to happen.
McQuaker's approach to management is ideally suited to running cautious managed funds, and his returns over the years are testament to this. If you are after an intelligently run, cautious fund then look no further than the Henderson Multi-Manager Income and Growth Fund.