Insight looks to the bigger picture

Ana Munro and Patrick Armstrong’s top-down approach to managing the Insight Investment Diversified Dynamic Return fund has reduced its exposure to equities to its lowest level yet.

The Insight Investment Diversified Dynamic Return fund has reduced its exposure to equities to its lowest level, since Ana Munro and Patrick Armstrong took over management of the fund in 2003. With the equity allocation being reduced to less than half, the fund has been raising its exposure to commodities and structured products.

Munro says she and Armstrong have a top-down approach to managing the fund. “We believe the risk-return profile of a fund is improved through both diversification and active tactical asset allocation. Therefore, we invest in a range of asset classes, including bonds, equities, commodities, property and hedge funds.”

The fund’s caution on equities is being driven by the economic slowdown in America. “There has been no de-coupling in financial markets so far, and there’ll be an impact on exports from emerging markets by slower US growth,” says Munro.

“With corporate earnings slowing, investors cannot expect the same returns from equities. Even if strong economic growth is maintained in emerging markets, risk aversion means equities will be dragged down. Since the start of the year, for example, there have been outflows of some $14 billion (7.1 billion) from Asian equities,” he addsMunro says the portfolio does hold funds that invest in direct property in Asia.

Despite concerns about economic growth in Asia, Munro says that supply and demand, especially from emerging markets, means that commodities still offer investment opportunities.

This theme includes soft commodities. Munro points to the difficulty of keeping pace with the rising demand for food, especially with a greater amount of production being devoted to supplying biofuels.

Munro says an extension of the agricultural commodities theme is livestock. She adds that with the rally in grain prices and higher costs, farmers have been slaughtering more animals and thus reducing inventories.

“Historically, a 100% increase in grain prices should lead to a 30% plus rise in livestock price, with a threeto six-month lag,” says Munro. “The current increase in grain prices is not down to a supply disruption and we expect to see livestock prices rise by 100% in the coming year.”

The portfolio has invested in a water fund. Munro says just 0.01% of the world’s water is available as drinking water. “Global demand for water has tripled since 1950 and growth in demand is accelerating.”

Munro also says there are investment opportunities among metals, notably platinum. She says: “Platinum is needed to produce cars, trucks and diesel engines. It is impossible to produce catalytic converters required by environmental law without it.

“It works as a catalyst, which means it promote a chemical reaction, breaking down pollutants without being consumed in the process. The price of platinum is also boosted by growing demand for jewellery from Asia.

“Furthermore, there has been a decade of under-investment in platinum. Eighty per cent is produced in South Africa, but power is an issue. South Africa faces at least five years of power rationing. We believe prices can rise to $2,000 an ounce.”