With celebrations marking the Chinese Lunar New Year underway, the zodiac has rotated once more into the Year of the Horse. John Monaghan, Research Director at Titan Square Mile, shares some insights into which funds we might find in our paddock of horses.
Horses, according to Chinese astrology, display a range of character traits combining those which are positive with others reflecting some weaknesses.
They tend to be confident and independent and enjoy mental exertion while they resent being reined in by others. Moreover, 2026 is the Year of the Fire Horse, with the Fire element accentuating these traits. This means that the next 12 months promise to see high levels of activity among Horses.
If we were to apply these personality traits to investment professionals, we would expect to see a highly active fund manager and one who is not afraid to pursue opportunities in parts of the market shunned by others.
In astrological terms, this year will see the wealth of Horses fluctuate, and similarly those who invest with the mindset of a Horse may experience short term volatility. Nonetheless, their confidence means that they are happy to ride this out in expectation of robust rewards over the longer-term.
With this in mind, and without speculating on the sign of the zodiac of the managers responsible for them, which funds might we find in our paddock of Horses?
First out of the gate is the Titan Square Mile A-rated Redwheel Global Emerging Markets fund. This growth-oriented strategy takes an unconstrained approach to asset allocation and it will often have a meaningful exposure to frontier and smaller emerging markets, something that differentiates it from many of its peers.
As a result, it will look and behave quite differently from the index, but its managers are not shy to stray from the beaten path to find attractive opportunities and are adept at investing in companies less broadly followed, or in some cases, not included in the fund’s benchmark.
This means the strategy is unlikely to suit investors looking for a short foray into emerging markets, but we think it might appeal to the more discerning long-term investors looking to grow their capital through a broad universe of emerging and frontier markets.
The AA-rated Aegon Strategic Bond fund is another thoroughbred strategy for the Year of the Horse. This is a dynamic, high conviction strategy which promises to deliver income and some level of capital growth, seeking to maximise risk adjusted returns through the market cycle.
It is an unconstrained fund consisting of a dynamic blend of fixed income instruments and its underlying process draws on six areas to drive its returns: asset allocation, credit risk, duration, yield curve, stock selection and sector selection.
The managers blend top-down views with bottom-up security selection, with performance being delivered across the different factors according to the market environment. The managers’ approach to expressing their views in asset allocation and the magnitude of portfolio changes can lead to a higher risk profile relative to some of its peers.
Nonetheless investors who are comfortable with an elevated level of volatility have been rewarded with strong performance over the medium to long-term.
David Jane and Anthony Rayner, managers of the A-rated Premier Miton Cautious Multi Asset fund, follow a dynamic and unconstrained approach and have long demonstrated their willingness to invest in a benchmark agnostic manner.
They seek to deliver attractive long term returns by investing in companies supported by structural growth themes, underpinned by a rigorous, risk aware framework. This entails collating and analysing fundamental macroeconomic data, understanding the market backdrop and assessing how this tallies with current market prices.
The managers look to act where there is a mismatch between data and the prevailing narrative with the resulting pricing anomaly creating an investment opportunity. They believe the market focuses on a small and immediate number of issues and often tends to be backwards looking.
The approach is therefore one which seeks to challenge consensus as this is where the managers feel the best and most repeatable opportunities lie. Price momentum is central to the investment process and the managers like to see positive price movement before they adopt an investment theme.
Key to the success of this approach is persistency, but in markets where this is lacking or changes rapidly, this strategy can come under pressure. We believe this fund may appeal to investors requiring capital growth via a portfolio primarily comprised of a mixture of equities and bonds.
The A-rated Fulcrum Thematic Equity Market Neutral fund exhibits many of the characteristics we regard as desirable in an absolute return fund. It has low net market exposure, a proven record of generating returns from stock and theme selection and its track record is negatively correlated to those from stock markets.
Despite its very low net market exposure (i.e. its long investments minus its short investments), the fund has a fairly ambitious return objective of at least Cash + 3-5% on a rolling three-year basis. The investment process begins with the identification of long-term (two to five years) investment themes driven by emerging technologies, long-term mega-trends and the analysis of strategic change.
The manager then looks for companies that are likely to benefit or suffer from these themes through fundamental bottom-up analysis.
Each of the 30-40 themes typically represented in the portfolio, which may have long, short or relative value theses, is then dynamically hedged with appropriate factor hedges comprising baskets of stocks or market indices so as to be close to zero in net market exposure and to isolate the desired idiosyncratic thematic opportunity.
We believe that it has a high probability of protecting investors’ capital in a major stock market sell-off, although this is likely to come with some volatility in its monthly returns.
This is because its gross exposure (including hedges) often exceeds 200% and the themes in which the fund invests may exhibit volatility over short time periods. Nevertheless, the fund’s management team has demonstrated a strong risk management discipline, reducing both overall and theme-specific exposure when appropriate.
Rounding up our runners and riders for the Year of the Horse, the AA-rated FTF Clearbridge Global Infrastructure Income fund seeks to generate a high- and growing-income stream through a globally diversified portfolio of high-quality listed infrastructure securities.
Its managers embrace an active bottom-up approach to asset allocation, believing that they can take advantage of mis-pricings of companies through cycles. Infrastructure investing can be interpreted in various ways. For this team, the underlying investment has to be a real asset, available for public use and have a regulatory framework behind it.
Within those parameters, the team’s focus is on companies with regulated assets, such as water and wastewater, gas & electricity transmission, as well as corporations with ‘user pays’ assets (e.g. airports, toll roads, and ports).
The team maintains a bespoke investment universe of the largest and most liquid infrastructure companies with predictable and often inflation protected cash flows, or assets that are long term in nature and which are operating in an environment with limited competition.
Despite the focus on stock selection, the managers monitor the broader backdrop as economic growth, interest rates and inflation can influence the value of infrastructure assets. The managers seek to purchase companies at a discount to their estimation of fair value by examining the excess return that they might expect over a stock’s holding period.
They also consider liquidity, ESG (environmental, social & governance) factors and any other specific risks that they believe should be taken into account. In general, the higher the excess return, as well as the confidence in this actually being delivered, the greater the weight a stock will have in the portfolio.
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The writer’s views are their own and do not constitute financial advice.
This information should not be relied upon by retail clients or investment professionals. Reference to any particular investment does not constitute a recommendation to buy or sell the investment.
Main image: andrey-soldatov-D0-3_M1Gr4g-unsplash
