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Graham Duce: Concentrate on the micro

Macro, macro, macro; it is almost impossible these days to go five minutes without hearing or seeing an economic or political headline.

Whether it be the latest eurozone development, word on the health of China’s economy or data shedding light on the strength of the US recovery, markets are increasingly being driven by big global themes.

Amid all of this ‘noise’ it can be extremely hard to not only block it out, but to focus on the longer term and spot quality underlying companies with attractive business models and prospects.

Our overall message is simple: while the macroeconomic environment cannot be ignored, after all none of us live in a vacuum, underlying stock selection is a crucial driver of returns and investors would do very well not to ignore the microeconomic situation. Developed market comparisons with Japan’s economic malaise over the past two decades are frequent, inevitable and unnervingly credible. However, even in such a low growth environment it has still been possible to identify success stories.

Cognisant of this, we take great pains to avoid making big asset allocation calls and focus our energies on finding fund managers who are able to consistently deliver returns.

Once we have settled on and chosen a fund our work has only just begun. In order to ensure that the funds remain at the top of their game, we continually monitor our selections and their peers using quantitative and qualitative methods which private investors simply do not have access to; at the slightest sign of weakness we scrutinise our selections vigorously so as to determine whether the issue is merely a blip or something more fundamental that requires action.

Adding a further level of diversification, we construct our portfolios by blending funds together that complement each other by having different characteristics.

For example, in our Multi-Manager Constellation fund we have long blended the GLG Japan CoreAlpha fund with the Morant Wright Nippon Yield within our allocation to Japanese equities. Both funds have outperformed the Japanese Topix index since October 2008 (the launch of the MW Nippon Yield Fund) and the correlation has been relatively low, particularly in 2012, in which GLG has underperformed and the Morant Wright fund has outperformed the index.

As an aside, we have been adding to the deep value orientated GLG fund in portfolios where it is held, after suffering one of its worst periods of relative performance as the style has been out of vogue.

Both holdings are evidence that the ‘micro’ is important and that fund selection can be very accretive to a portfolio’s performance. In contrast to many of our multi-manager competitors who increasingly focus on top-down asset allocation, we will continue to expend our energies and skill sets unearthing more of these types of funds.

Graham Duce is co-head of Aberdeen Multi-Manager Funds


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