Profile: Apollo’s Hughes on returning to being a nimble investor

Ryan-Hughes-700x450.jpgRyan Hughes has switched from being a small fish in a big pond to a big fish in a small pond. And he’s liking it.

Hughes switched from the big team of Skandia two years ago to join Apollo Multi Asset Management, after almost eight years at his former firm. The move allowed him to get back to what he enjoyed, namely “being a proper investor, being nimble” and he’s enjoying what he describes as the “close-knit team” of his co-managers Steve Brann, Craig Wetton and Ian Willings.

The foursome together manager the asset manager’s four multi-asset funds: defensive, balanced, cautious and adventurous.

Hughes has taken a softly-softly approach to his changes, but one of his first tasks was to reduce the more illiquid holdings, including the relatively high allocations to investment trusts in the portfolio.

“We are far more focused on liquidity management in the portfolio, which is just reflecting the fact the world has changed and you don’t always get rewarded for taking liquidity risk in the market,” he says.

One of his first big moves was to introduce property holdings to the portfolio, believing two years ago that the supply-demand balance meant there would be outsized returns in the sector.

He started with an allocation to the M&G Property Portfolio, which remains in the funds today and is the largest position in the Multi-Asset Balanced fund, at 9.5 per cent.

He has since added two more property positions: the Standard Life Property fund, which is the second largest Balanced fund position at 8.2 per cent, and the Kames Property Income fund.

“In the balanced fund property is 20 per cent of the fund, so a decent size position. The M&G fund is up 20 per cent in two years, so that’s been really helpful,” he says.

However, he doesn’t think property’s good run can last forever, and sees returns slowing as we go into next year and returning to normal investment returns of 7 to 9 per cent. “But obviously that still helps me a long way to our target return, so I expect it to continue to be a core holding in funds,” he says.

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Hughes admits his preference for property is in part because of his dislike of the fixed income market at the moment. “We see a lot of risk in the fixed income space, we have certainly seen a lot of volatility and have had a very low allocation to fixed income for some time,” he says.

The current allocation to bonds in the balanced fund is just 10 per cent.

In particular Hughes is critical of strategic bond fund managers, saying there are not a large number of talented managers in the space. Instead he sees two-third of the strategic bond managers in the market either piling into government bonds or into high-yield, and only a third actually strategically allocating.

For this reason he has no strategic bond allocations across the funds, although one area he does see opportunity is in short-duration high-yield – so debt with two years or less left to run.

Hughes is also wary on the equity markets, and is very conscious of accessing high active share and low beta funds, which led to the recent allocation to Polar Capital Global Insurance.

“We wanted to lower the beta exposure of equity, so we introduced Polar Capital Global Insurance. It has very much a lower beta, a defensive equity play, that’s actually proven to be a good resilient trade. It is up 3 per cent in the past six months when equities were down 4 or 5 per cent,” he says.

Despite these confident assertions from Hughes, assets in the Balanced fund have dropped since he joined two years ago, from £67m to £30m, and across the other funds.

As the business has matured some early-stage clients have redeemed their money, which Hughes says was known and expected. Apollo is now in growth mode.

“There is a real focus on growing assets and the firm has been actively talking about what we’re up to and what the Apollo approach is, as we’re different to more mainstream multi-asset managers,” he says.