Guildford-based Premier Asset Management is home to a number of Elite Rated funds. Guildford is also home to….me. So when I got the chance to have a lie-in before meeting up with one of their fund managers, I jumped at it.
After a nice stroll into the town centre (exhibiting extraordinary will-power as I passed the shops), I sat down with Paul Smith, manager of Premier Defensive Growth, to find out more about his fund.
Premier Defensive Growth, as the name suggests, is defensive in nature and aims (but doesn’t guarantee) to give modest but positive returns in any environment. It has been designed to appeal to risk-averse individuals or those wanting a lower-risk element to add to their portfolio.
Paul, you invest in five different themes – can you give us a short explanation of each please?
1. The first is ‘short term catalysts’. This theme focuses on catalysts that are likely to occur in the short term and will be a driver of the returns of an investment. At the moment, this part of the portfolio is the smallest it has ever been.
2. The second is what I call ‘defined investments’. These have a fixed life and fixed entitlement. Since the fund launched some ten years ago, the average fixed life has been less than two years. Having such a short time period allows me to more easily identify what could go right or wrong and invest accordingly.
3. The third area is ‘discount opportunities’. These are investments that are trading at a discount to their real value. For example, I may be able to buy it at £1 but its underlying value is £1.10. In this area of the portfolio I am not focused on how an investment might perform but instead on whether the discount will get bigger or smaller. If I think it will get smaller then it is an attractive investment.
4. Fourth is ‘trading strategies’. For example, if the likelihood o a fall in equity markets is given a small probability, yet we believe there is a much greater probability, we may look to buy an investment strategy that can benefit if equity markets fall.
5. The last one is relative valuations. This is where I look to see if one investment is better value than another. Take UK property as an example. It has a low yield and little growth to talk about right now. Many companies are really out of favour and cheap. I don’t need to make a call on property as a whole though, I can look at different UK property companies and decide which one or two offer better value and therefore better opportunity.
You run a bond fund as well as this fund – but you don’t like the outlook for bonds at the moment and only have two in this portfolio. As a bond investor, how do you deal with this situation?
In my view, the bond market is priced for perfection and not change at the moment. In this fund don’t have to invest in bonds, so I don’t when I can find other opportunities. Where I am invested, I have looked at individual bonds to find individual opportunities.
Absolute return funds didn’t really do what they were supposed to do last year when stock markets fell: many posted negative returns. What makes your fund different?
A lot of peers in this sector focus on economics and politics – the wider macro picture. This fund focuses on the micro climate – company or investment specific events. So it is doing something different.
Our economic and politic environment is very unpredictable at the moment, not to mention volatile, so to me it makes more sense than ever to focus on the micro. I can’t predict what the economy can do but I can predict what may happen with individual holdings.
Your career has been centred around low volatile investments – things that shouldn’t give you any nasty surprises and that are stable and more predictable. Do you ever wish you had chosen to invest in something more exciting like emerging markets?
Not really. I think my niche is in low risk investments. I do what I do well and while it may be tempting at times to wonder if I had taken more risk, would I have higher returns, that’s not what this fund is about. If I was suddenly given something more risky to run I might not be able to produce the same risk-adjusted returns. I’m happy with my lot!