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Brooks Macdonald Defensive Capital
Long-term capital growth and protection is the name of the game for this defensive, multi-asset fund. It aims to deliver positive absolute returns over rolling three-year periods, in a range of market conditions, with less volatility than equity funds. Beginning life as a fund used solely by Brooks Macdonald for its clients' own money, Brooks Macdonald Defensive Capital was subsequently opened to the public due to increased investor demand. This fund does not have a performance fee.
Our opinion
This is a true multi-asset fund that switched into the targeted absolute return sector in 2016 – a change that we feel can further highlight its benefits to investors. Brooks Macdonald Defensive Capital has been more volatile than its competitors in this space, but its long-term returns are also typically well above the sector average. Niall uses the range of tools available to them to dial up or dial down the fund’s sensitivity to market movements, which results in an intelligent investment mix that should see investors through a range of market conditions.Company description
Brooks Macdonald Group was established in 1991 and consists of several subsidiary companies, offering financial services and advice to individuals, pensions and institutions, as well as a fund management business. The group was listed on the Alternative Investment Market (AIM) in 2005, although management and staff retain considerable ownership. Sector specialisations include property and absolute return.
Fund manager
Dr. Niall O’Connor joined the company in 2013 and the Defensive Capital fund management team in 2016. Niall graduated from Cambridge University with a PhD in Theoretical Physics and an MA and BA in Physics. He previously worked as an equity analyst for both Credit Suisse Securities and Nevsky Capital.
Life is all about calculated risks; our fund prefers tortoises to hares, but is happy to take risk where already priced in or where capital is protected.
Dr. Niall O'ConnorFund manager
Investment process
While the types of assets that this fund holds can be a bit complicated—convertible bonds, preference shares, structured notes, bond and loan assets, and discounted assets—the goal of delivering positive total returns, regardless of market conditions, is straightforward enough. The managers seek to create a portfolio with ‘predictable’ performance by investing in assets that have fixed returns. They are careful not to overpay and will always try to buy assets when they are trading below their intrinsic value. Niall keeps a close eye on the portfolio mix and won’t hesitate to sell one of their holdings if its yield drops unacceptably, or if it seems likely to move in tandem with falling markets.
ESG
ESG - Integrated
ESG considerations are fully integrated into the investment process. Each holding is assessed individually, with information taken from multiple sources including prospectuses, annual reports and recent news. As the team conducts this research itself, it can assess both risks and opportunities.
This research is built into a 25-point checklist to create a scorecard for each stock. Those with poor results will be excluded. The ESG work doesn’t stop there. The scorecard is updated annually, with improving scores adding credibility to a holding. There is also ongoing monitoring and engagement with underlying company management teams.
Risk
As with all absolute return funds, it’s important to remember that its absolute return target is not a guarantee, and the value of an investment can still fall. To reduce the risk of assets failing to meet expectations, the fund typically has between 80 and 110 holdings and its underlying exposure is further diversified across different regions and sectors. During its lifetime, Brooks Macdonald Defensive Capital’s volatility has been higher than other absolute return and mixed asset funds, but much lower than equity funds.
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