A fund for worried bulls

Fearful that a near 10-year equities bull run is running out of steam? Manager Freddie Lait thinks his outperforming Latitude Horizon fund could be for you.

What's your investment approach to running a global diversified fund, and which stocks exemplify your strategy?

We do use single stocks as the core engine of our diversified growth fund. Now, that's different to half of the market who use the more systematic, index-based, asset allocation modelling approach to investing in diversified growth funds.

We're very, very keen to keep it fundamental and keep the process simple, so single stocks form the basis of that process and within them, we run a very, very style-agnostic approach to investing in stocks. It's a very long-term approach where we invest just as happily in compound-growth stocks as high-growth stocks as turnaround stories and value portfolio stocks.

So, we would look at a portfolio that contains Tesco, Royal Mail, Google, Unilever, and enjoy that offsetting ability within the portfolio, so there's very, very little tied-up style risk.

Alongside that, we use the non-equity investments like currencies, commodities, gold, and things like that, and bonds, to offset the risk within our equity portfolio and to add an incremental yield and return to the portfolio. So, you end up with something that feels like a long-term real return that's similar to equity markets with around a third of the risk.

Almost half the portfolio is allocated to non-equity investments like currencies, bonds and gold. Why?

So, about 50% of the portfolio will always be allocated to non-equity investments, and it's a very key part of our portfolio. We truly believe the engine of growth within the portfolio will be these single-stock equities that we have where we've generated alpha over the long-term in a relatively consistent way, but the non-equities take it even further.

So, we have half the portfolio invested with equity risk, but by adding non-equity investments such as bonds, inflation-linked bonds and currencies, at the moment, we further reduce that risk. Our drawdowns in the market have tended to be around a quarter or a third as much as the market, while our returns, through time, have kept up with stock market returns.

How has the fund performed relative to its objective and peer group since inception? What are the main drivers?

So, the fund has had a very good start, over the last 18 months, we're up around 11%, which is ahead of stockmarkets and ahead of our main peers who are, sort of, broadly flat to down 5% over the same period. So, we're very, very pleased with the return of the fund.

The objective, as we say, is to try and beat inflation by a meaningful margin over the rolling three-year period, and by 'meaningful', we really mean, sort of, 3% to 5%. Given global inflation has been around 2%, we're, therefore, doing very well compared to that market target.

But the key thing, as well, is in terms of risk, you know, our risk has been very, very positive for us, so in the first quarter of this year, the portfolio was up 1% when the market was down 5%. Over the period that we've been running it, the beta of the portfolio has been around 0.3%, which has been exactly in line with our target risk levels.

What type of investor would buy this fund?

It's a very good question. Hopefully, many different types, but critically, I think it's people who are worried about a top in the market and worried about the fact that equities have been on a, nearly, ten-year bull run, and are wondering how to contain that exposure and maintain some exposure as well, but reduce their risks to a full-term pullback in the markets.

Our view is that you should always be hedged for a stockmarket pullback, so you can never time them, and there's a 50/50 chance that, for the next two to three years, the market does carry on going up. Equities continue to be a great inflation hedge and a great source of wealth creation for people.

So, I think it's for people that understand the value of having equities as a ballast within their portfolio, but those who are probably a little bit nervous about the current market conditions and would rather dip a toe in or pullback their own equity exposure, as opposed to taking a full exposure to an equity fund at this stage in the market.

This is the transcript of a video filmed on 1 May 2018. To watch the original video, please click here.