The IFSL Wise Multi-Asset Growth fund has weathered various market storms since its launch 20 years ago. This article, based on the recent Fund Calibre team interview with co-manager Vincent Ropers, explores the challenges of navigating volatile markets, particularly amidst events like Brexit and the pandemic. Despite the noise, Ropers finds solace in the abundance of value opportunities for patient investors, highlighting sectors like investment trusts, private equity, biotechnology, and UK equities.
Why you should listen to the interview: With seven years at the helm, Vincent Ropers makes a strong case for the IFSL Wise Multi-Asset Growth fund to celebrate the fund’s 20 year anniversary. In these highlights, he touches on the sectors where they’ve identified investment potential and their key drivers, and in the full podcast he also examines the investment trust sector and its benefits and current challenges.
This interview was recorded on 22 April 2024. Please note, answers are edited and condensed for clarity. To gain a fuller understanding and clearer context, please listen to the full interview.
Interview highlights:
How market noise impacts fund management
“I think whenever you ask a fund manager whether a period is easy or difficult relative to history, I would be surprised if anyone tells you that it is easy at the moment. As soon as you lack hindsight, every situation in financial markets is looking quite testing because I think, by nature, markets are there to humble you and there’s never two periods that look similar.
“At the moment, I would say there is a huge amount of noise which makes it quite challenging. There’s a lot of noise in terms of the macroeconomic data but it’s not only that; it seems that the markets at the moment are more driven by investor sentiment, which makes it doubly challenging for people like us that are trying to invest our client’s money and beat the market because you’re not only trying to figure out where the data is going, you are also trying to double guess what investors are going to make of that data. And from one month to the next, a positive economic release might be perceived positively by the market or it can be perceived negatively which is challenging.”
Private equity is still attractive …
“We have about 10% direct in private equity. The investment trusts that we have in that sector trade on average at around 30-35% discount. It’s not as attractive as it was six months ago when those discounts were more 45-50% but it still remains very wide compared to history and also very wide compared to the quality of the assets that are in those portfolios.
“If we take one example, Oakley Capital Investment Trust, and look at the performance of their assets, they have recorded a 20% annual growth in their NAV over the past five years and yet the trust trades at a 30% discount to those net assets. This shows that there is still that very big disconnect between what those managers are doing and how it is perceived by the market.
“An important point to make is that when we invest in private equity, we are not talking about venture capital. We are talking about private companies that are already quite mature. Most of them are profitable which means that the managers have got very good visibility in terms of what the future earnings are going to look like, and what those managers are trying to do is not only find great companies that are private, but also use platform effects to put several of those private companies together where they can get synergies and thus increase the value in those companies.”
The appeal of biotechnology
“Biotechnology is an area we’ve been adding to for the past couple of years. It’s about 10% of the portfolio now – biotechnology and healthcare. Not only are there some very powerful structural trends behind the sector such as an ageing demographic, meaning that there’s more and more need for care and for drugs to cure an increasing number of diseases as people live longer.
“Another trend we are seeing is tremendous innovation in the sector and at great speed, which we saw also during Covid. The speed at which the Covid vaccine was developed was no fluke really, it was really because innovation had been accelerated until that point, which made it possible. So we’re seeing an increasing number of drugs coming to the market.
“Alongside these very powerful trends, if we look since 2001, we’ve seen the longest – in terms of duration and the longest in terms of magnitude – bear market in the sector, which makes it extremely cheap in absolute terms, relative to the rest of the market. And that’s an area that we find extremely attractive at the moment.”
Opportunities in UK equities despite underperformance
“As for UK equities, we have had year after year of outflows particularly since Brexit but over the past couple of years particularly in the small and medium-sized companies which have underperformed the larger ones. And that is an area which we are finding particularly attractive. We are finding a lot of value there, a lot of very exciting companies, which, contrary to popular belief, are not domestically-oriented. A large proportion of their revenues, even in the smaller UK companies, come from abroad so you can still build an attractive portfolio of UK small companies, which is still internationally biased and that’s an area that we have been focusing on. As a result, we have about 16-17% exposure to UK equities in our IFSL Wise Multi-Asset Growth fund.”
Decarbonisation will drive mining and commodities
“In addition to the sectors that we touched on earlier, we’ve got exposure to mining and there we’ve got two names, BlackRock World Mining Trust and the Jupiter Gold & Silver fund. What we like in that sector is that it is very cheap and market expectations for the sector are very low, so, if you put those two together, that’s usually a very good recipe for strong future returns.
“Then there is the growth element in the sector, which is this massive tailwind coming from the decarbonisation drive in the sector, which is going to keep the demand for industrial metals extremely high – and increasing – over the next few years. In the meantime, it’s been a difficult year for the sector, but trusts like the BlackRock World Mining Trust are offering 6% dividend yield which we find quite attractive.”
Why indirect exposure to US equities is safer than investing direct
“I think valuation is the key when it comes to America. We find US markets are too expensive, not only on several metrics but also in absolute terms, relative to their own history, relative to the rest of the world. For us, we can find many more attractive areas to invest in, and at the moment, we are struggling to justify investing in US equities because of valuations.
“The US equity index is as concentrated as it’s been since the mid-seventies, and that’s a very big concentration risk to us because it doesn’t take much for one or two of those companies to roll over for the whole index to come down with it. That’s why we don’t have any direct US managers in our portfolio.
“However, that doesn’t mean we don’t have any US equity exposure in the portfolio – we just get that exposure through maybe a more indirect route. For example, most of our biotechnology managers invest predominantly in the US because that’s where the market is happening for those companies. So those are US companies, for example.”
Conclusion: Vincent attributes the fund’s success not only to its consistency within the investment approach but also being able to “multiply expertise” by bringing together some of the best global managers through the fund of funds structure.
Main image: dan-cristian-padure-Al7oCLVJB8g-unsplash
