Investec’s inactively managed fund

Investec Managed Growth co-fund manager by Max King aims to keep trading on the fund to a minimum, preferrring to stick with the stocks he has selected rather than chase performance.

Investec Managed Growth seeks to generate outperformance by investing in funds that have high-conviction managers. Max King, co-manager of the fund, says that constructing a portfolio of high-conviction managers lowers the overall risk without negatively impacting upon performance.

“There are some good investment trusts, such as Monks, that offer private investors a well-constructed diversified portfolio,” says King. “But we feel such trusts replicate what we are providing. We are looking for funds that can add value to our portfolio.”

The fund has traditionally invested in investment trusts, with a maximum 5% exposure to unit trusts. Following rule changes, however, King has raised its exposure to unit trusts.

“There are two main reasons why we use unit trusts,” he says. “First, if we cannot gain exposure to a sector through investment trusts, such as gold or energy. Second, if there are better managers or better value via open-ended funds. If an investment trust is trading on a premium, we would choose the unit trust. Generally, however, our research shows that investment trust performance is better than for unit trusts.”

Investec Managed Growth has about 50 holdings and has reduced its weighting to the UK. “A year ago the fund had a 40% exposure to the UK, which we felt was too large,” says King. It has now come down to 31.9%.

King says that asset allocation is an important generator of returns but Investec Managed Growth is a relatively inactive trader of funds. “We think it is hard to add value by trying to sell funds at a high price and buy them back at a lower price,” he adds. “If you like a fund, market or sector for strategic reasons then we think you should stick with it. A month will often go by with us not making any trades of our fund holdings.”

King says he is cautious on equity markets generally after the three-year bull market but believes it is best to remain invested. “We have had inflows into the fund so we have built up a cash reserve of 5%,” he says. “This is in case there is a short-term correction.

“The problem is that the consensus is for a short-term correction, which means it will probably not happen. In the UK and other markets there are more buyers than supply, so share prices are rising. We believe if you find a good idea you should invest in the fund rather than wait for a correction in the market, as it may never happen.”

Investment trust issues in which King has recently invested include Melchoir Japan and Utilico. He also bought Edinburgh Worldwide.

“We like global funds that focus on stockpicking rather than big asset allocation calls,” he says. “We like some split-caps as well. Well-managed split-caps, such as Jupiter Second Split, have provided investors with strong returns.”

King says he keeps the fund’s asset allocation under constant review, although changes often comprise topping up positions and taking profits.

In January, the fund did switch some exposure from India to China. “We felt investors were focusing on India and disregarding China. We thus bought Atlantis China,” he says.

More recently, King has raised exposure to the US through the JP Morgan US Discovery investment trust.