Cash-rich global fund that’s (cautiously) cleaning up
BEN Leyland’s mantra as a manager of other people’s money is a simple one: ‘Heads we win, tails we don’t lose too much.’ It is an investment philosophy that makes Leyland, manager of JO Hambro Capital Management Global Opportunities Fund, more cautious than many of his rivals. It also explains why the fund is presently 20 per cent in cash. He believes equities are overvalued and heading for a fall.
Yet no one can dispute that his pragmatic approach has done anything but richly reward those who have backed him. Since launching the fund in June 2012, Leyland has delivered returns in excess of 100 per cent – more than double those from investing in the FTSE All-Share Index.
Over the past three years, the fund has returned 58 per cent. Only 12 out of the 226 global funds that Leyland competes against have delivered more.
The record has not gone unnoticed. Recently, powerful financial adviser St James’s Place Wealth Management gave Leyland £1billion of a £6billion global equity fund to run in identical fashion to that of Global Opportunities.
‘It’s a big vote of confidence in what we are doing,’ says Leyland, who is assisted by Robert Lancastle and Jas Munday. ‘Our approach is all about protecting capital while investing wisely. We don’t take inappropriate risks, so we avoid companies that we deem overleveraged or overvalued.
‘All the time, we’re searching for companies with strong balance sheets, good cash flow and powerful franchises.’
Though the strategy has paid off handsomely so far, Leyland believes more difficult times lie ahead. ‘Equity markets go through a cycle of investment sentiment – years of both overvaluations and undervaluations,’ he says.
‘We’re now in a period of overvaluation, which makes our lives as investment managers extremely difficult. We have to think carefully about whether we have sufficient risk controls within the fund. Over the next three to five years, it is going to be difficult to deliver strong absolute returns. People need to get used to a period of low equity return.’
As well as the big cash position, Leyland has attempted to de-risk the fund by ensuring it is sufficiently diversified across markets and sectors. Though the portfolio is concentrated, with just 33 stocks, all bar four of the holdings represent less than three per cent of the fund’s assets. He says: ‘The stock specific risk is high, so we have chipped away at some holdings so that individually they account for no more than 2.5 per cent of the portfolio.’
The search for diversification means the fund has a strong bias towards multinational companies that generate their revenues around the globe. Leyland says: ‘Consumer goods giant Unilever can give you exposure to Brazil, Indonesia and India.’
London-based JO Hambro Capital Management manages assets of £24billion. It is owned by Australia’s BT Investment Management and employs 27 fund managers and seven analysts.
As with Leyland on Global Opportunities, each manager and their supporting team are responsible for one fund only, ensuring they remain focused.
They are also happy to close funds to new investors if they think the portfolios have become too big to manage effectively.
Leyland says the global investment strategy he runs has plenty of capacity left. ‘We could run between £6billion and £7billion of assets without hitting capacity issues,’ he says.