Richard Troue: Patience is the key to Peirson's success
Friday 20 September 2013
Investing is a marathon not a sprint and an investment portfolio is only as strong as its core holdings. These should be chosen with a view to holding them for the long term, in the expectation they will provide support and stability through the tough times, and consistent growth during the good times.
The key to achieving this is to strike a balance between growth and diversification. Investments need to deliver enough growth to perform well when stock markets are rising. During tougher times diversification can spread risk and help limit any falls in value.
Adding value slowly, incrementally and regularly can add up to attractive returns over the long term. It might not be the most exciting way to invest, and performance might look pedestrian at times, but patience is the key. Steady returns are exactly what you want from a core holding. It takes great skill and discipline to manage a fund in this manner. Richard Peirson, manager of the AXA Framlington Managed Balanced Fund, has done so successfully for almost 20 years.
Mr Peirson has a simple strategy. He tends to invest between 75 per cent and 80 per cent of the portfolio in shares, with the rest in cash and government bonds.
The latter are used to provide balance to the equity holdings and reduce the volatility of the portfolio. Presently around 13 per cent of the fund is held in cash, with 10 per cent in government bonds.
He then aims to add as much value as possible through his equity holdings while maintaining a portfolio which is diversified across different countries, sectors and across companies of various sizes. He is responsible for the UK portion of the portfolio and with the outlook for economic growth improving, Mr Peirson believes this should be positive for corporate earnings over the course of 2013 and into 2014.
The backbone of the portfolio remains in large businesses with overseas earnings, such as HSBC, BP and GlaxoSmithKline. He has also been holding positions in house builders such as Barratt Developments, Persimmon, Bovis Homes and Crest Nicholson. The expensive land bought by the developers in 2007 is now falling out of their inventories, with cheaper land creeping in which should have a positive impact on profit margins. Performance here has been strong and some positions reduced as a result.
For the overseas portion of the portfolio, considerable input comes from AXA Framlington's experienced global team. Stephen Kelly, for example, picks the US stocks; Mark Hargreaves is the team's European stock picker; and Chisako Hardie provides the expertise in Japan.
Presently, almost half of the portfolio is invested in UK equities, with approximately 13 per cent in each of the US and Europe; 4 per cent in Japan; and 6 per cent in Asia and emerging markets.
Encouragingly, Mr Peirson suggests stock picking has been strong across the board recently with the exception of the US, where Stephen Kelly's style of seeking companies capable of strong growth and the ability to become much larger has not been in favour, although there has been some improvement of late. At the sector level, financial companies have performed well while resources companies have generally struggled as slow growth in China and emerging markets impacted the outlook for commodity prices.
Overall, our analysis suggests good stock picking has been a key driver of performance, while Mr Peirson's country and asset-allocation decisions have also contributed. He has outperformed the average fund in the sector in each of the past 10 years.
This consistency has added up to an impressive performance record with the fund delivering growth of 148 per cent over the past 10 years compared with 86 per cent for the sector average.
Fund management is awash with star names, but a closer look reveals unsung greats like Mr Peirson who are just as capable of outperformance.
He has built an exemplary track record of delivering consistent returns for investors in a variety of stock-market conditions.
I believe this fund could make an ideal long-term holding for virtually any individual savings account or self-invested personal pension portfolio.
Richard Troue is an Investment Analyst at Hargreaves Lansdown, the asset manager, financial advisor and stockbroker. For more details about the funds included in this column, visit www.hl.co.uk
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