Being strongly opposed to the US and bullish on emerging markets has been a risky and aggressive position in recent years, according to Premier’s Simon Evan-Cook (pictured), although the final months of 2018 proved it isn’t always a one-way bet. 
In fact, the manager – who runs the £209.5m Premier Multi-Asset Global Growth fund alongside David Hambidge, Ian Rees and David Thornton – said this is the stance that paid off in the fourth quarter of 2018 and led to an underperforming holding flourishing.
“Everyone in the US expects it to be brilliant and plain sailing. But if they get a shock there’s going to be a lot of money coming out of that market,” said Evan-Cook.
“If the type of selloff that you see is one that spooks markets then actually there are more people to sell in the US than there are in the less popular markets. And that’s what happened at the end of last year, a lot of people got spooked and the US dropped fast.”
Performance of indices in Q4 2018
Source: FE Analytics
The US has led the way for the bulk of the post-crisis rally while emerging markets have lagged the developed world for much of the past decade. However, FE Analytics shows that this dynamic was reversed in the heavy sell-off that struck global equities in the final three months of last year.
“What a lot of people think is the highest quality and the most defensive market actually turned out to be the worst [in Q4]. That was by most people’s reckoning a terrible quarter for equities,” the multi-manager said.
“But we had some emerging market funds that went up by 3 or 4 per cent over that three-month period, just because everyone who could possibly have sold all the emerging market stocks that they hold had already sold them over the last three years. So, you actually ended up making money over that period because they had their own things going on.
“In fact, our single most defensive holding of the fourth quarter last year was a small-cap value emerging market equity fund, which was probably the very last holding people expected to give you any kind of defensive features in that type of market.”
That outperforming fund was HMG Global Emerging Markets Equity, which is a Luxembourg-domiciled Sicav that was launched in November 2014 as a joint venture between Goodhart and HMG. The fund has a value approach to investing (which has been out of favour for much of the past decade) and focuses on the emerging market subsidiaries of long established and well managed developed market companies that have a history of profitable overseas expansion.
Premier’s multi-asset team monitored the fund at launch but at the time emerging markets were suffering a sell-off and the new HMG Global Emerging Markets Equity fund was hit harder than most of its peers because of its exposure to Latin America and energy companies.
Performance of fund since being bought by Premier Multi-Asset Global Growth
Source: FE Analytics
However, the multi-managers added to it to Premier Multi-Asset Global Growth in September 2015 after speaking with the managers and deciding that the underperformance was down to market whims rather than poor decision making.
“This means we have been able to buy into this portfolio at an attractive valuation and a decent starting yield, both of which should contribute to the superior long-term returns we are aiming to generate in our own fund,” the Premier team said at the time.
Since being added to the multi-manager portfolio, HMG Global Emerging Markets Equity has made a 41.42 per cent total return – underperforming its average peer and the MSCI Emerging Markets index. However, it has come into its own more recently and is up 13.93 per cent since the start of 2018’s fourth quarter, while the index has made 5.21 per cent.
Fund vs sector and index in Q4 2018 and Q1 2019
Source: FE Analytics
Indeed, performance in both the final quarter of 2018 and the first quarter of 2019 has been above that of both its average peer in the FO Equity – Emerging Markets sector and the MSCI Emerging Markets index.
Evan-Cook puts its recent outperformance down to the fact that its contrarian positioning left it relatively insulated from the selling that was taken place in the rest of the market during the panicked conditions at the end of last year.
“Nobody is interested in the type of stocks that they buy, but if nobody is interested in it that means there’s not a lot of holders,” he explained. “When they all got spooked there’s not the immediate rush to sell what you can, as we saw in Q4.”
An allocation to a small-cap value emerging market fund isn’t the only contrarian positioning in Premier Multi-Asset Global Growth. For some time, the fund – and the other portfolios run by Premier’s multi-asset team – have been underweight the US.
“At some point [the US] just cannot carry on getting more expensive and everything else will catch up and US equities will catch down,” Evan-Cook said.
“This reminds me a little bit of 1998-2000 which was the tech bubble. The markets were split in two, where tech and growth went up almost exponentially.
“When the tech bubble peaked and went down, it went down an awful lot and actually value funds went up. Suddenly for the next seven or eight years the value fund managers – the guys who were finished a few years before – were considered to be the guys who had actually got the button right.”
While the correction of 2018’s fourth quarter has blown some of the froth off of US equities, the manager added that it would take several years of US underperformance for valuations to reach a level low enough for him to slowly invest his fund there.
“We just don’t see any need to follow anyone else,” he said. “All of our investors are UK based so we don’t see any reason why we should be putting investors’ money into what is effectively a foreign market with currency risks just because everybody else is doing it.”
A more constructive stance on UK equities - Premier Multi-Asset Global Growth has 17.3 per cent of its portfolio here – is another contrarian stance from the manager. Investors have avoided the UK because of the uncertainty created by Brexit but Evan-Cook argued that this has left the market looking good value.
“If you’re a global equity fund manager and you’re sitting in New York, the UK equity market only makes up 5-6 per cent of the global equity market. They can spend a lot of time rooting around here trying to find really good ideas but end up thinking: ‘I could do that and then Brexit will go wrong, so I’ll just not bother for now until Brexit has gone away’,” he said.
“But that means if those buyers aren’t there then it pushes the share prices down; share prices are therefore cheap and we’re quite interested in that.”
Performance of fund vs sector under current managers
Source: FE Analytics
Since being taken over by its current managers in July 2012, Premier Multi-Asset Global Growth made a 119.27 per cent total return – ranking it sixth out of 101 funds in the IA Flexible Investment sector. It is top quartile over three and five years but slips into the peer group’s third quartile for the past 12 months.
The fund has an ongoing charges figure (OCF) of 1.71 per cent.