Plumper cushion aims to break fall

The managers of Swip Multi-Manager Select Boutiques remain stoic about last year’s slide in relative performance and argue that robust funds help mitigate unpredictable macro events.

Simon Wood and Mark Harries successfully protected the Scottish Widows Investment Partnership (Swip) Multi-Manager Select Boutiques portfolio from the worst of the crash in 2008, but their cautious approach suffered in relative terms during last year’s stockmarket rally.

Swip data shows that the £17m fund fell by about 20% in 2008, compared with a 26% decline for the Active Managed sector, but performance lagged by a similar margin in 2009 as stockmarkets rebounded – causing the portfolio’s ranking to lurch from first to fourth quartile. Despite its movement down the relative performance table, Wood says the fund is achieving its aim of cushioning investors during market falls. (article continues below)

“We’re very much focused on the downside, or the managers we invest with are,” he says. “It’s hard to predict what the markets are going to do but we can reasonably say that, whatever the conditions, we have a good idea of how the manager will perform. The back-testing we run suggests that most of these managers participate in about 80% of downsides, and about 80% of upsides as well.”

Alongside the four British managers, Select Boutiques contains nine funds investing in other equity regions. Funds from Gam, Neptune and Odey form the portfolio’s global equity allocation, while emerging markets exposure comes from Aberdeen and Hexam. Europe – a region in which Wood sees “good opportunities” – forms 9% of the portfolio, with the weighting split between Neptune and Odey.

The portfolio’s American and Asian allocations come from single managers – Findlay Park and First State respectively. Wood says Findlay Park’s record made the firm’s American Smaller Companies fund an easy choice. “There are plenty of [American] managers that have outperformed for a couple of years and then they don’t do it any more,” he adds. “Findlay Park protect so well on the downside.”

Despite his reluctance to make predictions, Wood forsees a continuation of market volatility. “The micro seems quite good – most companies’ balance sheets are in good shape – but it’s these macro events that could come out of anywhere,” he says. “The glass seems half-empty this year, rather than half-full as it was last year.”