Bevan Blair: Portfolio Q&A

Bevan Blair has been chief investment officer at One Four Nine Group since 2019. Before that, he was director of strategic asset allocation at Tilney and was previously at Ingenious Group. He has a PhD in accounting and finance and lectured on the subject for several years.

Which fund in your portfolios are you most pleased with?

CCLA Better World Global Equity Fund. We have been supporters of this fund for nearly two years and while the performance has been pleasing what we really like about this fund is its unique approach to sustainability. We are big supporters of CCLA’s approach to engagement with the companies in their portfolio.

We feel that managers who truly believe in sustainability need to be pro-active in their engagement with companies trying to change behaviours for the better. CCLA do this well and I feel have proven that sustainability does not always mean giving up return.

Which was your worst asset allocation call and what did you learn from it?

Back in 2011 we made a call to have exposure to Norwegian Krona in our portfolios and found an ETF that would give us Long NOK, Short GBP so we could include it in an MPS portfolio (for DFM clients we bought the physical bonds). The idea was that GBP should depreciate in the long term against currencies running large structural current account surpluses.

What we didn’t factor in was that central banks can have other ideas and they actively managed the interest rate policy to stop NOK appreciating. We held the position for two years and, whilst we didn’t lose money, that capital could have been allocated better elsewhere. We have never taken a tactical currency view in portfolios again.

Right now, China or India?

We do not take views on either individual countries or regions, preferring our equity managers to just find the best companies globally regardless of domicile. Moreover, I am not a big believer of macro-economic analysis driving returns in portfolios. Often the macro story may be right but the equity market acts in the opposite direction of what you are trying to achieve

Biggest fund red flag?

The biggest red flag would be a change in the investment objective, be that return or risk. If they are changing their objective they are probably admitting that their philosophy and/or process won’t be able to deliver those objectives and those are the ones you probably bought the fund for in the first place.

Best source of uncorrelated returns?

Currently it would be sovereign debt. For a number of years until the beginning of 2024 we felt it was an uninvestable asset class as the reward being offered for the risk we were taking was not fairly compensating us, so we kept duration as short as we could with sovereigns at around two years and had just short dated credit funds for the balance of our bond exposure.

We think now that we are being rewarded correctly, and that the low correlation sovereign bonds did exhibit prior to the beginning of the last rate rising cycle has now returned as we are being compensated for the risk we are taking.

What makes your process different?

We think that investors are loss averse not risk averse so we build portfolios to avoid loss and think about risk in terms of how much we could lose, not in terms of volatility.

When we build portfolios we target a value at risk (loss in other words, within a specific time frame and with a specific probability) for that portfolio (from which we can derive an implied volatility) and this can lead you towards a different asset allocation than if you targeted a level of volatility.

What do you think is your most interesting tactical call at the moment?

We don’t put short term tactical calls on in portfolios. Any return from the short-term tend to be driven by luck rather than skill. When we do put tactical calls in portfolios we think about what they may do over three-five years.

Our last tactical call was back in January when we finally extended our bond duration to seven years and reduced our weight in cash and credit in favour of sovereign bonds. We did this as we felt we would soon be entering a rate cutting environment globally, and that there is a heightened probability of recessionary conditions over the next three-five years.

Sovereigns will offer us a source of low correlation and protection should that happen, and if we are wrong they will still provide a decent return given where current yields are.

Is there an asset class you are currently on the fence about (buying or selling)?

No, although gold is about the only alternative asset class we would consider, but we generally think that a position in gold is just a guess about the future price. It is almost impossible to forecast gold’s price in the near term (three-five years) and even in the longer term (10-20 years) it is difficult to say. In the very long term (100 years plus) it is an incredible store of value, but that is in reality your time horizon.

What (other than Asset Allocator of course!) have you read recently which you’ve found particularly interesting or insightful as regards your work managing portfolios?

I read Trillions by Robin Wigglesworth last year and it did change my view on passive investing. I do worry though if the market become entirely passive how we discover prices and if it ceases being a market at all!

What’s your hottest investment take?

We like to keep portfolios simple. We think that a combination of cash, long-only bonds and long-only equity will in the long run actually deliver you very good returns, with an appropriate level of risk.

Return chasing will end up hurting you in the long run. You cannot control the returns from markets but you can control the risk you take. Focus on the risks and the returns will come.