Scottish Widows Investment Partnership’s multi-manager team focuses on capital preservation as the key to long-term performance, even though this approach may seem unexciting.
Multi-managers Mark Harries and Simon Wood are pragmatic about managing money, with a cautious management style that means their funds are not designed to top the performance tables in strong bull markets.
Instead of aiming for outperformance at any cost, they focus on not losing money. When managers lose money in difficult market periods, they have to recover lost ground in performance terms before they can generate outperformance.
Harries and Wood say not losing money in a downturn means they should come out the other side with less ground to make up than their more aggressively managed peers.
The experience of the underlying managers during market turmoil as well as the good times is crucial in preserving capital on the downside.
They say the decisions made by managers who have been running portfolios for decades are more considered than those with limited experience who need to make an impression.
Swip’s capital preservation strategy put the Swip MM select boutiques fund in the first quartile in 2008 when most funds in the IMA active managed sector were hit by the financial crisis.
But by 2009, Swip MM select boutiques had slipped into the fourth quartile – with returns still in positive territory – as markets rallied.
Wood says: “Last year was a volatile one in which select boutiques had second-quartile returns. We are happy with the way the fund has performed as it did not lose money and returns have been smoother than its peers in the active managed sector.
“Some funds in the sector are still underperforming, even though it is still a strong market. It is important to make sure you manage downside risk because protection on the downside means you have to work less hard to get back up.”