Managers Colin McLean and Donald Robertson, who co-founded SVM in 1990, believe diversity across asset classes is the way to protect investors in volatile markets, but this has to cover more than a spread of equities, property and bonds. They also invest in less correlated assets such as regulated hedge funds, private equity and other specialist closed end funds.
The funds will invest in most assets using a fund of funds approach, but their fixed interest/cash weightings will be invested directly in securities unless there are specific areas where SVM could benefit from another manager’s skills through a fund.
Other asset classes will be accessed through investment funds, of which around 80 per cent will be investment trusts. McLean and Robertson like investment trusts because they provide low-cost access to illiquid assets that are non-correlated to the stockmarket or difficult to access through other structures.
The managers look at these investment funds in terms of defensive and growth elements, which are blended in the portfolios. The defensive portion will be invested in areas that do not move in line with the stockmarket, such as hedge funds, property or private equity. These assets are considered defensive because they do not rely on stockmarket to produce positive returns. The growth portion is focused lower risk funds in areas such as the Bric economies and higher growth funds in developed markets.
McLean and Robertson take a contrarian view, as they believe they get the best price and liquidity when sentiment is running against a sector. This contrarian approach is magnified by the use of investment trusts, because the discount on the trust will widen when sentiment is running against a sector and narrow when it is in favour.
The multi-asset approach is becoming popular with multi-managers but SVM has a slightly different take on this with its direct fixed interest strategy and preference for investment trusts. Many investment trusts are still trading on wide discounts, so the SVM funds stand to benefit when they narrow. However, there is a risk of discounts widening further so that investors could face a lengthy wait for the value spotted by the fund managers to be realised.