Q:  What are the core beliefs behind your way of managing money?

A: We manage a fund of funds with the belief that equities as an asset class will always increase in value over the long term. Everything that we do is based on that principle. We believe that equity markets allow investors to place capital at risk, put that capital in the hands of entrepreneurs, who create businesses that employ people and service their clients. That process is a win-win for everybody if successful, and in line with that philosophy, we are quite negative on hedge funds because they don’t create real wealth in the way long-term equity investments do.

We think that, more often than not, markets are very efficient in the way they allocate capital. That’s why over long periods of time, they generally outperform most other asset classes. Of course, there are periods when we do see capital allocations in the wrong areas. During these periods we attempt to identify more defensive assets to shift our strategy in this direction. Whilst over the short term almost anything can happen, in the long-run, we believe that equities will always go up and that’s our fundamental philosophy.

Q:  Do you have a preference for certain types of stocks? Is the distinction between value and growth important for you?

A: We spend a lot of time analyzing the global economy trying to work out where we see opportunities. Sometimes we do consider growth and value styles, but every opportunity that we evaluate is for growth. I believe that the distinction between growth and value is often made by the marketplace; the only distinction that we make is between lowrisk and high-risk investments.

We’re always looking for sectors that we believe have an advantage. It may be something that’s been overlooked by the market and has a trading advantage that can generate profits. We’re looking for opportunities and we follow a wide universe as things can change rather quickly. What we might be interested in today may not be the same tomorrow.

For example, in recent years we’ve been very keen on following inflation. We’ve watched how inflationary pressures are growing within the economy. We identified areas that we believe have an advantage and areas where we see a problem, and we structured our portfolios to benefit from that situation.

Q:  So you do pay a lot of attention to the macroeconomic developments, is that correct?

A: Following the macroeconomic picture is the vast majority of what we do. I believe that you get a better return from being in the right place and the right fund. Quantitative analysis alone has relatively little importance for us; it is a fairly easy way for choosing funds but generates only a small amount of outperformance if you get it right.

So our choice of funds is determined by our macro view because the performance of the managers depends on the macro environment. There are managers that do particularly well when the markets are moving up strongly. In such an environment we might favor funds that we wouldn’t favor in a more volatile environment.

Q:  What kind of investment styles do you seek out for the Select Strategy Fund?

A: Our company runs four funds, which are managed with a similar philosophy. The main difference between them is the risk profile of each fund. We base the risk on a scale of 1 to 10 and the Strategy Select Fund is in the 3 to 4 range, so it has a risk profile that’s slightly below average.

Currently we seek out funds that generate fairly strong dividends, so we have more income than growth bias. Typically we invest in 12 to 14 funds. At the moment the fund is about 50% in the UK, which is a fairly typical long-term weighting. Normally, we have about 20% in fixed income markets, but right now we have a strong underweight on that with 5% in that market and 15% in cash. The remaining 30% of the portfolio is traditionally spread equally between the US, Europe, and the Far East emerging markets.

Q:  What criteria do you follow when choosing the fund managers?

A: We look at how they performed historically but not over the traditional one, three, and five year periods. We take data from periods where we think the market trend changes.

We look for funds that generally outperform when the market is rising and continue to outperform when the market falls. Of course, the funds that can perform in both environments tend not to be the best fund in either environment. But we look at the ratios and how they’re doing on both sides of the curves and those are the funds that we tend to purchase for the long term. But it is not just the performance that matters. We spend a lot of time talking to the fund managers and trying to understand what they’re trying to achieve in their fund.

Q:  When you talk to the fund managers, what qualities do you look for?

A: It’s a difficult question but we’d look for managers who are passionate about what they are doing, who really have a grasp of the value of the market they’re investing in, and for managers who give you confidence that they can add value to the portfolio. There are a lot of different managers with different styles, so there’s no golden rule, but we’re looking for people who give us confidence. We also look for managers whose portfolios are in accordance with our top-down view.

In terms of performance, consistency is the key criteria. Occasionally, you’ll find a fund whose annual numbers look good just because of one month of good performance, and I have no interest in such funds. We don’t want managers who are gambling, even if sometimes a gamble pays off. We want managers who are consistently adding value, probably a small amount of value over the short term, but the cumulative effect over long periods can be quite impressive. So the consistency of outperformance is one of the most important things for us.

Q:  Do you look for firms of certain size, with a certain number of people or years of existence?