The M&G Global Basics fund had a torrid time from early 2013 until the end of 2015, during which time its assets plummeted by almost £5bn and it saw two manager changes.
Veteran manager Graham French ran the fund from November 2000 until November 2013, when he retired from fund management after a spate of poor performance. Between January 2013 and November 2013 the Global Basics fund returned just 4.8 per cent against the 21.9 per cent rise in the IA Global sector, according to FE data.
The falls led French to issue an apology to investors for the fund’s lacklustre performance, telling shareholders it was the first time the fund had been faced with net redemptions in 12 years, with the fund’s assets falling from £6.6bn in June 2011 to £4.1bn in November 2013.
The baton was passed to Randeep Somel, who had been deputy manager on the Global Basics fund since 2010. During his two-year tenure as lead manager, the fund fell 7.5 per cent against the 7.8 per cent gain in the sector, FE data shows. In December 2015 M&G announced Jamie Horvat – who had been running an institutional equity portfolio for Vanguard since joining M&G two years earlier – would assume control of the fund that month, with Somel remaining as co-manager. It was not M&G’s intention to restructure the portfolio, but rather to utilise Horvat’s experience to galvanise the fund.
Horvat, whose career in investment management spans 16 years, says he “always wanted to do what I’m doing now” but jokingly admits he studied mechanical engineering to ensure he could “get a real job”.
Positions at Canadian firms AGF Management and Sprott Asset Management followed, where Horvat ran a range of funds including small cap, all cap, precious metal and North American mandates. This was followed by a year spent at investment bank Stifel Nicolaus, where Horvat was a director in the precious metals arm, before being headhunted by M&G to run the Vanguard Precious Metals & Mining fund.
Horvat and his team use what he calls a blended approach, combining quality growth and value buckets to find companies they want to invest in. The managers spend 20-30 per cent of their time on top-down work, considering factors such as global growth, inflation and PMI data, which Horvat says “leads us into specific sectors”.
The remaining 70-80 per cent of their time is spent on bottom-up analysis, looking at companies’ management teams, boards, governance, accounting policies and whether they are using leverage to grow their assets.
Horvat says: “If we get past these [factors] we delve into the growth aspect. We look at what the company’s advantage is, its inflection point, the potential for the multiple expansion of earnings or revenue, the return of capital and whether we can buy in at a reasonable valuation. We are growth at a reasonable price investors, not momentum investors.”
He adds: “My process focuses on being diligent but cynical. We poke holes in each other’s arguments and use sell-side analysts both in house and externally.”
The Global Basics fund sits in the IA Global Sector, but Horvat claims it differs to its fellow sector peers.
“A lot of the funds in the peer group are closet benchmark funds,” he says. “The Global Basics fund is benchmark agnostic and doesn’t look anything like the benchmark. My aim is to build the best portfolio of companies I can find for returns to unitholders.”
There are currently 56 companies in the portfolio, which Horvat is comfortable with, although he tends to run a slightly larger portfolio of between 60 to 80 names.
He says: “The number of holdings is all based on opportunity. It is based on risk versus return. I won’t buy 20 per cent of a company if the liquidity doesn’t allow me to do so. And if we are wrong we need to admit our mistakes and sell the position.”
One of the key changes Horvat has made to the portfolio is to move down the market cap scale. Prior to assuming control, the fund was essentially a large-cap portfolio, he says, but Horvat – who takes an all-cap approach – has been buying into global mid-cap stocks recently and continues to add to them. These include two healthcare companies and a private banking firm.
“These are active positions. We now have 15 per cent in small and mid-cap stocks. Historically in the funds I have run I have held a third each in small, mid and large caps, so this fund could potentially go that way, but it is predicated on valuations.”
Horvat has also doubled the cash weighting in the fund and – perhaps unsurprisingly – initiated a position in precious metals.
The manager has trimmed several of the fund’s large-cap positions that have “significantly outperformed” and thereby raised the cash level from 2.5 per cent to 5 per cent in order to take advantage of the market volatility this year.
He has also been investing in precious metals companies such as Franco-Nevada and Newmont to protect the portfolio against tail risk.
He says: “We have added precious metals for portfolio insurance. We now have a 5.5 per cent weighting in precious metals; previously it was 0.”
This addition to the portfolio has been beneficial. In the month to 10 February the fund was 0.26 per cent ahead of the benchmark, having been 3.89 per cent behind, Horvat says. Over one year to 18 February the fund has lost 7.3 per cent against the 5.3 per cent average loss in the sector, according to FE data.
Horvat expects the fund’s annual turn-over to be between 30 and 35 per cent, in keeping with the way he has managed past mandates.
“The changes to the portfolio are more of an evolution,” he says. “We have trimmed positions and raised cash and added 10 or 11 new positions.”
One change M&G is considering making to the fund’s investment policy is to lift the requirement for the fund to hold a minimum of 70 per cent in primary industry sectors, such as basic materials.
Horvat and his team say this requirement is “too restrictive” and is under review, but any changes would be subject to shareholder approval.
With flows having stabilised, the fund’s assets now stand at £1.8bn, but Horvat says the fund has the capacity to be “significantly bigger”.
He says: “My job is to earn the proper risk-adjusted return for unitholders and beat the benchmark. Assets of £10bn would not be unmanageable in a global equity portfolio. But step one is getting the fund to perform.”
56 Companies in the portfolio
5.5% New position in precious metals
7.3% Fund’s loss over one year
10 Positions added since Horvat became manager
£1.8bn Assets in the fund
December 2015: Horvat is appointed lead manager on the Global Basics fund alongside co-manager Randeep Somel
December 2013: Joins M&G as director of global equities and begins managing the Vanguard Precious Metals and Mining fund
October 2012: Horvat is hired at Stifel as a director in investment banking
January 2008: Joins Sprott Asset Management as portfolio manager and co-manager, running the Sprott Opportunities Hedge fund and the Sprott Gold and Precious Minerals fund