Global team ready to stand by Japan
Jason Britton at T Bailey Growth acknowledges multi-manager errors over the 2008 financial crisis and declares a strategy of caution to avoid mistakes in the wake of the disaster in Japan.
The T Bailey Growth fund is shaped by the often contrarian views of its managers. Since its launch in 1999 the same team has run the fund, making it one of the longest-standing multi-manager teams in the global managed sector.
Jason Britton, T Bailey’s chief investment officer and fund manager, says a notable low point was the financial crisis of 2008 - a difficult time for all funds of funds.
Analysing the crisis, Britton takes an unusual view of why many multi-manager funds underperformed and how they should have reacted differently. He says funds that were traditionally good performers underperformed bad funds and that this was because the difficulty of obtaining bank loans forced good funds to sell prime assets to raise cash for investment.
Britton’s retrospective view is that fund of funds managers, including T Bailey’s team, did not approach the crisis correctly. (Fund of funds continues below)
“In July 2008, what we should have done is switch entirely to bad funds. We never thought to do that, of course, but this would have been the most sensible course of action.”
The T Bailey Growth fund’s direction is strongly influenced by its management team’s view of the global economy.
For example, 7.2% of the portfolio is allocated to the GLG Japan CoreAlpha Professional fund. Even though Japan has endured a crippling natural disaster and the stockmarket has plummeted, Britton’s defence strategy is to hold steady.
After an earthquake that registered 9.0 on the Richter scale, a chain of events unfolded including a deadly tsunami and potential meltdown at the Fukushima Daiichi nuclear power plant. More than 10,000 people are thought to have died.
With the long-term human and economic impact of the disaster still unclear, Britton says: “What we often do during events such as this is not very much. If you react too swiftly to a crisis it is a mistake which can result in you ending up on the wrong side of the ups and downs”.
There are further examples of these contrarian calls affecting the fund’s direction. Despite the Middle East crisis and fears of a Chinese bubble the T Bailey Growth fund is likely to continue to hold emerging market funds through 2011. Britton says he may even increase his emerging markets position when the opportunity arises.
The T Bailey Growth fund has maintained an overweight position in British equities over the past two years. Holdings include the Standard Life UK Equity Recovery fund, and BlackRock UK Equity fund.
But Britton says the weighting could be reduced if he decides that a bigger move back towards emerging markets is needed. He adds that tough decisions would be made “sympathetically, but pragmatically”.
It can be a complicated task for a global fund of funds manager to keep up-to-date with events in several markets around the world at the same time.
It is for this reason that TBailey Growth holds several exchange traded funds (ETFs), including the fund’s top holding, the iShares S&P 500 ETF.