David Ryan is head of multi-asset funds with Setanta Asset Management, which has €8.9bn under management. His responsibilities include Setanta’s managed fund. The fund is available to investors through Irish Life, and is open to those with a lump sum of at least €10,000.
Investment philosophy
Ryan said the driver of Setanta’s outperformance in multi-asset funds is its value investing process. “This is predominantly driven by our strong performance in global equity funds, our largest asset weighting.”
Within asset allocation, most of the main classes look expensive in aggregate on historical valuations, given the distortions caused by ample liquidity. However, Ryan said you can still find value.
“We’ve reduced ‘safe’ developed government debt, an oxymoron in my view, towards short-dated emerging market credit and floating rate debt, where there are illiquidity and credit premiums to be had.
“We don’t tend to trade in and out of positions in the short term, instead relying on our disciplined value process, a long-term horizon and patient implementation. We are happy to hold positions indefinitely, or to maturity in the case of bonds, if the investment case continues to stack up.”
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Performance
The fund is top this quartile against its peers over one, three, five and 10 years, according to Ryan. Its five-year annualised average return is 13.5% a year, net of standard fees, as at April 30, 2017.
Buying and Selling
The fund has been adding to credit while reducing its position in cash and European government debt. Corporate bond yields and spreads in general are tight, offering very little protection to higher yields or a harsh default cycle.
“If you are willing to move away from just blindly buying the large benchmark names towards the lesser-loved areas of the markets, there are opportunities,” said Ryan.
Setanta took advantage of strife in Turkey to buy Arcelik AS debt, one of Europe’s largest white goods manufacturers through its Beko and Grundig brands. Its bonds offered value as the company continued to perform while expanding into emerging markets and maintaining a robust balance sheet.
One area of financial strife is offshore drilling, said Ryan. The oil price is struggling under the glut of shale production in the US and the waning powers of an Opec cut. This has led to forced selling of some names as they dropped out of the investment grade rating, so called fallen angels. “We have taken advantage of this, through the long-dated debt of offshore drilling provider Ensco. It is one of the largest players, with a good liquidity position, a young high-spec fleet of assets, and the balance sheet to lead in M&A activity.”
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Outlook
“To paraphrase Churchill, some investors feel the need to foretell what is going to happen tomorrow, next week, next month and next year. And then to explain why it didn’t happen. We consider scenarios while weighing up valuation. Mitigating loss of capital and achieving adequate returns are our key goal.”