Barings has had a busy year. New funds, extensive recruitment and the appointment of Tim Scholefield as head of global equities have kept it in the news. Adam Lewis reports.
The last time Fund Strategy reviewed Baring Asset Management (July 31, 2006) the focus was on how the head of equities, David Kiddie, was turning around its fund performance. Four months after that profile, Kiddie resigned from the group to join ABN Amro.
Kiddie, who joined Barings in December 2003, was replaced by Tim Scholefield, the head of global equities, who joined the group from Scottish Widows Investment Partnership in October 2006.
“The first thing that struck me when I took over from David was the group’s excellent investment process and its strong team of people,” says Scholefield. “David laid many strong foundations and my role thus far has been to extend on these. No radical surgery has been required.”
Today, the group manages $45 billion (£22 billion) in assets under management. According to Morningstar, the group runs a range of 15 onshore funds for British investors, all of which have oneand three-year track records to July 9, 2007. Over one year six of these funds are ranked first or second quartile in their respective peer groups, while over three years eight funds are ranked in the top half of their sectors.
While Kiddie identified several areas to improve, Scholefield notes the main investment process at Barings goes back several years. “Our main emphasis is to find companies that can earn earnings surprise at reasonable valuations,” he explains.
So far, Scholefield has concentrated on the group’s range of global products. Indeed, most of the news concerning the group over the past few months has revolved around either the creation of new funds, or the opening of offshore funds to British investors.
In May the group announced it had received Financial Services Authority approval to register and promote its $35m Russia fund in Britain. Originally launched in 1997, the fund is managed by Ghadir Abu Leil-Cooper, head of the Emerging Europe Middle East Africa (EMEA) team at Barings.
In December 2006 the group soft-launched an emerging markets income fund that targets an annual gross yield of 6%. Jerry Devlin, head of UK sales at Barings, says that the group has not actively marketed the fund, so as to allow manager Ece Ugurtas to establish a track record. “We will start marketing it at the end of the third quarter when it has a nine-month track record,” he says.
“We have four investment sites across the world, Boston, Hong Kong, London and Tokyo,” says Scholefield. “It is important for the group to leverage off this global presence and we have been working hard to develop products that can do this.
“One product we are particularly excited about is our Global Select fund. Managed by Chris Lees, it is an unconstrained, high-alpha fund, investing in 40 of our global best ideas. The fund, which is offshore but has UK distributor status, was launched two years ago but changed its name six months ago.”
Despite recent underperformance in several of its onshore fixed interest funds, Bambos Hambi, head of multi-manager at Gartmore, still sees Barings’ fixed income team as one of the group’s areas of real strength.
He says: “We continue to own the offshore high-yield bond fund. The fund was run by Marino Valensise, but three weeks ago the mandate was handed to Ece Ugurtas. This was after it announced that Valensise is to assume the role of chief investment officer when the current incumbent, Michael Hughes, retires at the end of the year. We have met Ugurtas twice in the past 18 months and rate her highly.”
Hambi adds he has not looked at the recent performance of Barings’ three onshore fixed-interest teams, but says any team will always go through a patches of short-term underperformance.
Ian Pascal, marketing director at Barings, says: “It has been a tough six months for our global bond funds. This is because we believe global bond markets and many currencies are in extreme positions. However, the funds are positioned in a way that if markets come back to where we think they should be, we will see a rapid turnaround in performance.
“Our Sterling Corporate Bond fund has never been a major area for us. The fund is small (£6m) and has only ever been sold to our private clients. We are looking to merge the fund into a much larger institutional one to create a single Oeic, as we think the two funds will work better together. The new fund will have assets of about £100m.”
In terms of the effect Hughes’ retirement from Barings will have, Scholefield says: “Michael will retire from Barings having established a robust and successful equity process during his time with the company. We will continue to manage portfolios using this process and so the equity team will not be significantly impacted by Michael’s retirement.”
The last time Fund Strategy profiled Barings, Hambi noted the improvements Kiddie had made to several of the group’s equity funds. “I have not met Scholefield yet, but David was great at spotting good fund managers,” he says. “One of his key recruits was James Buckley from Premier, who manages the European Growth fund. This fund has since performed well and is now on our reserve list of funds to buy.”
According to Morningstar, Buckley’s European Growth fund, which he took over in August 2005, is first quartile over three years, ranked 15th out of 87 funds in the Investment Management Association (IMA) Europe ex UK sector. Over one year the fund is second quartile.
Tim Cockerill, the head of research at Rowan & Co, says Buckley’s fund is the only bright spot at Barings at present. He says it does not use any Barings funds and has not done so for the past three years.
He says: “I liked Buckley when he was at Premier, but the fund he managed there was under-resourced. It was a good move for him to join Barings and he has improved the performance of the fund he runs a lot.
“It does have other funds, which have performed well at times, such as its Korea fund, but it is not a group which we have much contact with. This is because many of its funds do not come up on the fund-grading screen, which I run on a monthly basis. There has never been much need to look at its funds, especially when there are so many other funds out there to choose from.”
Hambi adds it was Kiddie’s decision to hire Charlie Deptford from Insight in June 2004. Deptford manages the group’s UK Growth and Equity Income funds and earlier this year he started running a pan-European income mandate for Japanese investors.
Both Hambi and Cockerill say they are keeping a close eye on Deptford. However, in terms of the Equity Income fund, Cockerill says there are many strong funds in that sector. “As a result, the fund has to keep getting better before it becomes a possibility that we use it,” he adds.
Scholefield notes there is a possibility it may at a later date make Deptford’s new Pan European equity income fund available to British investors. The $100m fund, called Baring All Europe Income, selects from a basket of equities across developed and developing European markets.
In terms of the rest of the group’s fund range, Scholefield concedes one region where performance has been relatively poor is Japan. According to Morningstar, the Japan Growth fund, managed by Joji Maki, is ranked third quartile over one and three years in the IMA Japan sector.
“The dip in performance is largely because the market environment is not favouring Maki’s distinct investment style at present,” says Scholefield. “Japan is not a well researched market and there are many opportunities to find unrealised value in the small and mid-cap areas. However, this area has been out of favour recently, although there are signs of this now stabilising.”
Elsewhere, in April the group applied for distributor status for three Dublin-domiciled funds of funds: Extended Risk, Optimum Risk and Reduced Risk. These funds, managed the firm’s multi-manager group headed by Sam Jeffries, are now available to British advisers.
“We are not trying to take on New Star, Gartmore or Jupiter,” says Devlin. “The funds use a unique targeted risk approach, but we are not trying to become a major fund of funds player in the UK retail market. The strategy is to sell the funds through third parties, particularly offshore and life offices.”
The Extended Risk fund targets annualised returns of about 5% above the rise in the consumer price index, while Optimum Risk targets CPI plus 3.5% and Reduced Risk looks for CPI plus 2%.
Overall, Scholefield says Barings’ is constructive on global markets at present and he sees many attractive investment themes. The first is continued growth in emerging markets, particularly India and China. “We also see demand for energy and materials to remain high.”
He adds: “As we are cautious on the American consumer and the American housing market, our global portfolios are presently avoiding US consumer and financial companies. Despite this caution, we are still bullish, it is just a question of being selective.”
Meanwhile, following the departure of seven of its emerging markets team to Resolution’s Hexam Boutique last year, Scholefield says after a bout of recruiting, the team is fully up to strength. “We have had a full emerging markets team for six months now,” he says.
The key for Barings is to retain the managers who have started to turnaround the fortunes of the group. “To retain talent, we offer a corporate environment where people can express themselves and where their interests are aligned with the development of the company,” he saysAnother factor, says Cockerill is telling advisers about its funds. “I feel I don’t know it well as a group,” he says. “While it has some good funds, I think it needs to put itself out more and engage with the discretionary market. Competition is strong, so if Barings has an interesting story, it needs to come out and actively tell us about it.”
“In equity terms, Barings is doing all the right things,” Hambi concludes. “It is a house we are monitoring closely to see if we can add it to any of our portfolios.”
BARING ASSET MANAGEMENT is owned by MassMutual Financial Group, which has more than £228 billion ($456 billion) in assets under management and 13 million clients. Barings has more than £23 billion in assets under management and offices in America, Asia and Europe.