Counter-trader flourishes on frisson

Bill McQuaker adopts a defensive stance to protect the Henderson Multi-Manager Growth fund by selling equities and buying bonds - however, he also injects risk when things look desperate.

Bill McQuaker adopts a defensive stance to protect the Henderson Multi-Manager Growth fund by selling equities and buying bonds – however, he also injects risk when things look desperate.Bill McQuaker, the head of multi-manager at Henderson Global Investors, began reducing risk from the Multi-Manager Growth portfolio 12 months ago. These moves paid off in terms of relative performance, with the fund ranking first out of 39 funds in the Investment Management Association (IMA) Active Managed sector over one year to October 13, according to Morningstar. However, like every fund in the sector, it produced a negative return over one year. It fell by 26.59%, compared with a sector average fall of 33.47%.

“There’s been some tactical adjustments over the last year,” says McQuaker. “In early November we decided we wanted to be positioned more defensively. We sold some equity exposure, in particular more aggressive equities. We took some of it off the table. We held a technology fund for example, and we sold it. But when things have been really desperate we’ve put some more risk on the table. We’ve done that several times.”

When news emerged that a “rogue trader” at Société Générale had lost the bank about £3.7 billion, markets reacted badly. At this point McQuaker put risk back into his portfolio. He refers to this as ‘counter-trading the market.’

In July he sold out of equities because of his view on the economy. “Profitability in the corporate sector had really been hit hard by the commodity prices as 20-year highs had moved to 20-year lows in about four months. We reduced equities then and it encouraged us to buy government bonds. We thought then we were probably set in course for a recession.”

More recently, McQuaker sold some of his government bond exposure, in another ‘counter-trade’ of the market. “When equities were in freefall we put a bit of exposure back in,” he says. However, he may add some government bond exposure back in at some stage.

It may be surprising to know that one of McQuaker’s larger holdings in the Henderson Multi-Manager Growth portfolio is a financials fund, the £706m Jupiter Financial Opportunities fund, managed by Philip Gibbs. According to McQuaker it held up “extremely well” in the turmoil, with Gibbs restructuring the portfolio into cash and bonds.

In addition, McQuaker says Gibbs is well qualified to take full advantage of opportunities arising within financials when the market turns. “At some stage it will be right to come back into banks,” he says. “It’s an interesting position for us.”

In terms of geographical allocation, the fund is underweight sterling and overweight overseas assets, as it has been for some time. As at September 30, the fund had a 19% exposure to Britain, 11.8% in America and 10.8% in emerging markets.

Over the longer-term, McQuaker warns investors of becoming too pessimistic about markets. He says low valuations lead the way to a more optimistic outlook.

“We think on balance the situation remains a bit sticky,” he says. “That’s why we continue to run a cautious stance. In 2009 there will be some challenges, but it is worth looking at the longer-term content.

“We’re starting from low valuations so there is scope for the world to surprise us on the upside. People should be careful of being too pessimistic.”