Asset Allocator likes to pulse check the DFMs we cover and see how they are doing throughout the year.
We were overdue a catch-up with the team at You (not you, You) and so we conversed with fund manager Cormac Nevin for the lowdown on their approach to fund selection.
One of the things to come out of the discussion was their current view on the famed Lindsell Train UK equity, which has endured its fair share of criticism lately.
At the turn of 2024, when some allocators were going cold on the fund, Nevin stuck by it, and while performance has not materially improved since then – it has lost 2.6 per cent so far this year – his position going into the second half of the year hasn’t changed.
“Temporary underperformance is a natural consequence of active management, especially for those strategies with very low portfolio turnover,” he said. “We have detailed face-to-face monitoring meetings with Nick Train on a six-monthly basis and, as long as the manager is adhering to their stated investment style and demonstrating an effective stock selection process over time, our portfolio diversification allows us to hold on through these tougher periods.”
What would incentivise him to sell a fund, then?
Nevin said a key reason to divest from a manager would be style drift, which often takes the form of adding assets which deviate from the stated investment philosophy or when AUM becomes too large to execute their strategy effectively. Manager changes can also cause sales, he said, and this is an event we’ve covered in great detail.
“The more difficult manager changes occur where the subs-bench manager is deemed marginally better than the incumbent,” he said, highlighting the grey area around event-driven selling.
He added that their blend of two other active UK equity managers alongside Lindsell Train have outperformed the FTSE All-Share over the year, indicating that they didn’t buy it in isolation.
Those two funds in question are Invesco UK Opportunities and Polar Capital UK Value Opportunities. Both of these funds are top quartile performers year-to-date (indeed the Polar Capital fund is the fourth-best performer in its sector).
Blending styles is an important part of Nevin’s philosophy and he told us that his combination of three idiosyncratic absolute return strategies has fared particularly well this year.
“This blend of managers is designed to have very close to zero sensitivity to equity or fixed income, and therefore act as a true beta-neutral diversifier,” he said. “This has been particularly successful over the last 12 months, returning 12 per cent with an annualised volatility of just three per cent.”
Further still, the team employs a blend of listed infrastructure, plus a managed futures strategy, an ETF commodity basket and and a small allocation to physical carbon credits as a further diversifier.
It’s clear to see that You is a fervent user of alternatives when compared to allocators such as Morningstar and One Four Nine, who stay out of these waters completely.
They're also big fans of emerging market debt, which you can read more about here.
