While the T. Bailey Growth fund team has recently doubled the portfolio’s allocation to European equities, its managers insist the introduction of quantitative easing across the currency bloc was not behind the move.
Looking at the decision to up the £178.8m portfolio’s allocation from circa 5 per cent at the start of the year to a now punchier 10 per cent, co-manager Peter Askew says: “You can make an argument that QE was not necessary, as an economic recovery across Europe was taking hold anyway, employment data and other indicators were improving. That is what really triggered the move although QE does provide a good boost.”
But there’s a currency element naturally at play here too. “The collapse of the euro relative to the US dollar has boosted European competitiveness, while lower oil prices and labour market weakness continue to offset any inflationary pressures from the currency’s fall – not that inflation has been a problem for the region,” adds co-manager Elliot Farley.
While Farley has been with T. Bailey since 2000, having previously been an associate chartered accountant with Deloitte, his colleague Askew is a more recent addition to the team after joining in 2013. Previously he led global fixed income teams at T. Rowe Price, Flemings and JP Morgan. In 2008 he joined multi-family office Salisbury Partners and then three years later launched his own consultancy advising asset management businesses while continuing in his role with Salisbury.
T. Bailey itself was originally set-up by the Forman Hardy family at the turn of the century and Askew urges this backdrop is one of the firm’s USPs – in that investors’ money is invested and aligned with that of the group’s founders.
Since its December 1999 launch to 23 April, the investment boutique’s flagship Growth fund has delivered a total return of 123.66 per cent, well ahead of the Investment Association Global sector average performance of 77.8 per cent for the period. More recently over one, three and five years, while the performance gap has narrowed, the portfolio remains ahead of its peer group mean.
The fund managers, who also co-run the firm’s two multi-asset strategies including the £27.2m Dynamic Fund and the more fledgling £14.9m Defensive portfolio, assert that their investment process is all about looking at where the long-term growth opportunities are.
As strong supporters of active management, Farley says: “We are looking at managers in terms of what returns they can generate, not the amount of assets they gather. Such managers tend to be high conviction and index agnostic.”
While the pair have warmed to Europe over recent months, their “favoured area” right now in regards to where they can identify the best long-term growth prospects is Asia.
Askew says: “In Asia, we now have some 21 per cent, as opposed to some 15 per cent a year ago – and we include China in that.” He explains that these days it is very difficult to allocate emerging markets, where they have a 7.4 per cent allocation in one bundle, given the divergence across the world’s developing markets.
“China is slowing but it is still growing at a faster rate than many other parts of the world. In India, given the recent changes in government and the central bank – all that direction of travel should benefit the nation,” adds Askew.
But despite the bullish attitude towards Asia, the managers admit they are still finding plenty of growth opportunities in the US, notwithstanding any market arguments over valuations in the world’s largest economy.
The four areas the co-managers look for in the region and, they admit across their investment spectrum generally, include technology, healthcare, infrastructure and what they label “disrupters”, or as Askew explains, “new or established firms, which disrupt the competition, usually as a result of technology”.
He adds: “In infrastructure, the demand is in excess of supply.”
The managers say that overall their primary focus is on achieving performance for investors rather than asset gathering. In many cases they choose smaller more agile managers with the conviction to build a focused portfolio based on their best ideas.
Farley adds: “We invest in individual managers investing in themes we like, which are not yet fully priced. We are looking at what returns a fund brings in as opposed to how much money it does.”