Flexibility complements fixed view

Fund Strategy - 2 Jul 2012 | By Adam Lewis

This month marks the third anniversary of Stewart Cowley’s managerial involvement on the Old Mutual Select Managed fund.

Until October last year Cowley, Old Mutual Asset Managers’ (Omam) head of fixed interest and macro, worked on the fund with Peter Baxter, the group’s chief executive officer. However, after Baxter quit and was replaced by Julian Ide from BBVA Asset Management, Cowley is the only named manger on the £78m fettered fund of funds.

Three years since his first involvement the performance numbers stack up well. According to Morningstar over three years to June 22, the fund is ranked third out of 62 funds in the IMA’s Mixed Investment 40-85% Shares sector, having generated a positive return of 39.42%, versus the sector mean of 29.39%.

So how has the fixed income manager, who runs the Old Mutual Global Strategic Bond and Global Bond funds, been able to make the transition? Cowley says the idea was to allow him to extend his view of the world from just fixed income into both equities and asset allocation. (FoFs continues below)

“A series of good asset allocation calls and the excellence of our underlying managers has given the fund an edge.”

Cowley says the fund was overweight in equities but in March he started to reduce this and added some of the group’s non-directional hedge funds while raising the weighting to his own OM Global Strategic Bond fund and the OM Dynamic Bond fund, run by Christine Johnson. He attributes the performance to this move.

Cowley would like to raise the fund’s equity and corporate bond weightings as he says a reflation trade is on the horizon. “Governments are doing the wrong thing,” he says.

“Instead of cutting taxes and spending they are revving up public expenditure to create jobs and growth. The erosion of will of the political classes to carry forward austerity given its unpopularity is good for equities and corporate bonds, but bad for government bonds.”

Cowley does not feel restricted just investing in Omam’s own funds. “Protecting client money is our managers’ most important aim but they are not content with basis point outperformance, they want percentage point outperformance.

“This attitude is very helpful if I do make a wrong asset allocation call. For example last year we had too much invested in Asian and Japanese equities but no harm came to the fund because the fixed income funds outperformed by several percentage points.”

Out of a range of 17 possible Omam funds to invest in, the fund is invested in 11. It also has the capability of investing in externally managed funds where the group has no suitable funds on offer, for example in emerging markets.

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“The fund is invested in a full range of vehicles from fixed interest to equity income, global, single country and hedge funds,” he says. “It also has a mix of styles from quant-driven funds to more fundamental approaches.”

While Cowley may not have the 3,000 funds other multi-managers might have to choose from, it has not constricted performance.

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