You're listening to Strictly Business Podcast with Lindsay Williams. Welcome, and today we are in conversation with Ian Cunningham, Portfolio Manager for the 91 Global Strategic Managed Fund. I don't know how to introduce these podcasts anymore because every single sort of theme is the same. It's been such an eventful first quarter, Ian. I mean, it escalated once the Trump tariff announcement, Liberty Day or whatever it was called. So how has the fund performed against this backdrop?
And what's been the detractor and what has been the contributor or contributors and detractors to your performance? Hi, Lindsay. Yeah, it certainly has been a volatile first quarter and then obviously a lot more volatility through the first half of April in particular. I think as we look at things as we stand today as we're speaking, so the US equity market is down. A little over 10% year-to-date. The strategy Global Strategic Managed is down in the region of 2.5% on a year-to-date basis.
The detractors within the portfolio have generally been U.S. equity positions, which have been hit sort of the hardest by, as you say, Trump's Liberation Day and the push of the tariffs, and then obviously some of the other things he's been doing in terms of jostling with Jerome Powell of the Federal Reserve. We've seen positions in some other equity markets internationally doing better.
So some of the positions we have in European equities and equities in areas of Asia, particularly Hong Kong, have performed more strongly and are up on a year-to-date basis as of today. But it was principally the U.S. equity positions that have detracted. And then we've seen some quite strong performing positions in other areas of the portfolio, so across the currency complex. So you'll know the dollar has weakened quite sharply.
So the portfolio has had good exposure to the likes of the euro, the yen, the Swiss franc, which have all risen quite strongly. And it's had a very healthy exposure to defensive government bonds with limited exposure to credit markets and short-term government bonds in particular have risen in value. How do you approach your day these days, Ian? Do you get in in the morning and say, goodness me, this is exciting because I've got so much choice and flexibility?
Or on the other hand, do you sit down at your desk and say, oh, no, not another day. of unpredictability on the macro and the micro level. So my nerves are a little bit racked. How do you view it? And given the likely, in some people's eyes, end of US exceptionalism, is this finally the time for global balance funds and specifically your global strategic managed fund to shine? Yes. I mean, ultimately, we've seen very different market conditions over the last couple of years.
And I think that the... The toughest conditions we've seen for a diversified global balanced portfolio was the environment we saw about just over a year ago in 2023, where basically you were seeing strongly rising US equity markets driven by a very narrow cohort of stocks, which we all now know is the Magnificent Seven. I think ultimately, as we go forward, there is significant efforts to to reorder the international trade. geopolitical landscape by the US administration.
And there's going to be a lot of living by sort of tweet or truth social. So we're going to see a lot of volatility. And I think ultimately, a strategy like global strategic managed is sort of in a better position to be able to deal with that. We have a lot of flexibility we can use from an asset allocation perspective. We've held a lot of dry powder coming into this. So we're able to take advantage of opportunities as and when they when they turn up. And we think as well.
in terms of what's happening with the US dollar. The US dollar has been very, very strong in the last few years. And that is as weighed on total returns for a portfolio like Global Strategic Managed, which has more international exposure like yen, euros, for example. And we think we're likely past the sort of the peak strength in the US dollar for the time being. I mean, that can add more of a total return tailwind.
for this particular strategy as opposed to the prior headwind it has been for recent years, as we've seen a lot of dollar strength over the last couple of years. So as you say, ultimately, volatility is far more interesting, presents a lot more opportunities versus some of the conditions we've seen in prior years where we've just seen sort of a narrow cohort of stocks driving markets higher while everything else struggles or languishes.
I looked at your fact sheet, which was valid till the end of March. You had an allocation of 66% to global equities, 30% exposures to defensive fixed income. What's your current position? Because I would imagine since the end of March, it's been almost like a lifetime, and things may have changed a bit. Can you confirm or deny that? Yes, things have changed a little bit. We have, so immediately after the tariff announcements, we did take a bit of the portfolio's equity exposure down.
The market didn't react. much initially. So equities were nudged down closer to the long-term average of 60%. We have taken advantage of adding back some equity exposure, as we saw markets sort of come off quite considerably. We did that particularly in areas like Hong Kong, where we see the Chinese providing more of an explicit policy put for financial markets out there.
And also the Chinese are detailing quite a significant pivot towards stimulating consumption in the coming year or year or two. And then elsewhere, we've reduced some exposure to things like Swiss francs, which have rallied incredibly strongly. In recent times, we've taken the portfolio's position in gold out, which has been rallying very, very strongly. And ultimately, I think our central scenario is we're going to see a lot more volatility and the portfolio does maintain.
a very healthy exposure towards defensive government bonds given although credit spreads have widened a little bit we think credit spreads are still a bit too tight given the prospective volatility and environment we're going to be in in the next couple of quarters but ultimately we'd anticipate that that sort of exposure to defensive government bonds can be rotated elsewhere into higher return seeking assets as and when the time is All right. I spoke about flexibility and so much choice.
And that was sort of the exciting part of your day. If you're an optimist, if you're a glass half full sort of bloke. And when there's times like this, Ian, of course, opportunities do pop up. Where are you seeing them? If you can be relatively specific, where are you looking to add more? Where are you looking to initiate new positions? Is it geographical? Europe, UK, China, India, etc. Tell us more.
Yes, I think, I mean, if we go across the asset classes from a currency perspective, we would expect the US dollar to sort of continue its path of weakening here. But I see things don't move in a straight line. It's moved very sharply in a short space of time. So in terms of dollar weakness, but we'd be looking to fade any rallies that we see in the dollar. So adding exposure to international currencies, I think from an equity perspective, we're willing to remain pretty tactical in the next.
few quarters, we expect quite a lot of volatility coming through. So we'll likely be adding exposure to equities into significant sell-offs and then looking to maybe lighten up a bit if we see material rallies. And then across the fixed income spectrum, we do see opportunities in defensive government bonds, as we will likely see areas in Europe and the UK easing policy as a result of these tariffs from the US, as we'll see. some economic weakness coming through.
And I think more specifically within equities, I think some key areas of stimulus going forward are obviously there's a lot of domestic stimulus coming through in Europe. And we do think this is an important pivot the Chinese are making towards consumption. So China has been heavily focused on an export model for the last couple of years. So we know that China has been heavily exporting. moving up the value chain in electric vehicles, in areas associated with green energy.
They're pivoting back towards boosting consumption. So there's a lot of interesting consumption plays related to China, particularly domestically. It's interesting if you take out the US Treasury bond market, for example, take that out. There are still some global developed market bonds and other bonds that offer some sort of defense.
And sort of linked to the US dollar as well, it's quite extraordinary the way that the US dollar, normally a safe haven as US treasuries would be, coming under such pressure. How does that affect your management of global currencies? The challenge with the dollar is the dollar has become exceptionally well-owned. So most people's portfolios now are significantly skewed towards US dollars and towards US equity markets.
and When you start to see sort of reverberations and policymakers in the U.S. doing what are deemed to be quite wild things versus recent history, people become less comfortable with owning those assets and they start to bring money back home. So that's one of the key reasons why we've seen the dollar weaken more recently. And I think ultimately the U.S. economy is slowing down coming into this, and it's likely to take a bit of a hit from a growth perspective.
which will cause the Fed to ease through the second half of this year, we believe, once they gain more confidence as to how high this short-term bump in inflation is going to be within the US. So we would say... So it's going to be bumpy, but we would expect the US dollar to continue to weaken, although it's likely overshot in the very short term. And we'd be looking to fade any strength in the US dollar. Bumpy translates to volatility, of course, and there's nothing guaranteed.
But one of the nearly guaranteed conditions that we're going to see over the next few months, maybe even beyond, is volatility. This, of course, is, I suppose, ideal for you and the team. We've got so many different ways to take advantage.
of it and you've also demonstrated the willingness to pull the tactical asset allocation lever what i didn't mention earlier on because i wanted to bring it into the very final question is that the fund is 30 years old and it's got a proud track record but the last three years haven't been so great so what would your message be to current holders in the fund and other people other investors that may be having a look but at the moment sitting on the sidelines
yes so So, ultimately, Global Strategic Managed Offers invests as a globally diversified portfolio that's aiming to deliver capital growth over the medium to long term by outperforming a benchmark of 60% global equities, 40% global bonds, and it's aiming to do that over rolling five-year periods. As you say, the last three years has been mixed. So, 2022 was quite a strong year for the strategy versus its benchmark. It outperformed quite considerably in a down. on market for most asset classes.
2023, 2024 have been much tougher for the strategy. It's been a tougher environment, and particularly 2023, where the strategy was more defensively positioned in seeking to protect capital, given the higher prospect of recession we deemed at the time. That sort of affected early 2024 as well, and then the strategy over the past year has been stronger. We've made some improvements on the equity selection side, which have been a bit of a drag.
And we remain confident in the strategy's ability to use flexible asset allocation where it's added quite a lot of value over time. And as we say, volatile markets, we expect to continue and we would expect to be able to use the strategy's approach to flexible asset allocation. And as I say, at the moment, there's quite a lot of dry powder to be deployed into opportunities as and when we see those. emerging more fully within markets.
And I think one other force that's maybe a little bit underestimated for global strategic managers is the degree of international currency exposure that the strategy will have on average. So exposure to currencies like the yen, the euro, the pound, the Swiss franc. And in the last few years, that's been quite a big headwind for the strategy in terms of total returns. But as we've discussed, we sort of expect that that is beginning to change.
And we see that providing more of a tailwind for territorial returns for the strategy. Ian, great chat. Thank you very much for your insight. Ian Cunningham is Portfolio Manager for the 91 Global Strategic Managed Fund. The views and opinions expressed in these podcasts are those of Lindsay Williams and various contributors and do not reflect the policy, position or opinion of any other agency, organisation, employer or company. or company associated with StrictlyBusinessPodcast.com.
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