Pyrford Global Total Return - tobacco investments hold back returns

Dominic Rowles | Tue 26 February 2019

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• The manager and his team are cautious in their outlook for global stock markets
• They've invested the fund conservatively
• We expect it to deliver inflation-beating returns over the long run

Our view

A well-diversified portfolio should include funds that invest in different ways. From those that aim for maximum growth, with the inevitable ups and downs that come with it, to those that take a more conservative approach.

Tony Cousins, manager of the Pyford Global Total Return Fund, is a conservative investor. He aims not to lose money over any 12 month period, whatever the stock market's doing. He also aims to deliver an inflation-beating return over the long term with relatively low volatility.

To achieve this Cousins and his team invest in government bonds, shares and cash. When their outlook is positive they invest more in shares. When they're cautious they invest more in government bonds and cash.

The team has used this approach since 1994, and this fund was created in 2009. They've only lost money in two calendar years – 2002 and 2018. We think this is a good achievement, though it's a reminder that even conservative funds will fall and rise in value, so you could get back less than you invest.

The team’s experience and disciplined approach means we expect them to deliver modest long-term growth, while offering some shelter from the inevitable swings in the stock market. It features on the Wealth 50 list of our favourite funds across the major sectors.

What's the team's outlook?

Cousins and his team think investors face a cocktail of uncertainty. Central banks around the world are reversing their quantitative easing policies, which kept markets afloat in recent years. It's anyone's guess what impact this will have, but the team thinks it's a reason to be cautious.

High government and household debt also doesn’t help. And rising interest rates could make it more difficult for borrowers to afford their repayments.

Add to that the potential for tensions to escalate between the US and China, with an acrimonious divorce between the UK and European Union, and there could be volatility on the horizon.

The team also point out the fact shares and bonds have generally done well in recent years, so there could be less potential for future growth. That's not to say some money can't be made, but they remain cautious.

How's the fund invested?

68% of the fund's invested in UK, US, Canadian and Australian government bonds. They don't have long until maturity, which is when bondholders get repaid the money they lent.

Short-dated bonds are considered lower risk because their prices aren’t affected as much by interest rate and inflation expectations as long-dated bonds. It’s also usually possible to sell them quickly, and to use the proceeds to invest in better opportunities when they arise. The flipside is they're not expected to generate significant returns.

30% of the fund's invested in the shares of companies across the globe. This part mainly focuses on companies that produce goods or services people will pay for regardless of the state of the economy. Pharmaceutical company GlaxoSmithKline and utilities business National Grid are examples. The team also has the flexibility to invest in emerging markets which, if used, adds risk.

Investments in UK shares were reduced over the past year and now account for 10% of the fund. The managers think UK companies could struggle to grow earnings as much as they've done in previous years because rising debt could reduce peoples' spending power. The proceeds were added to existing overseas investments.

How's the fund performed?

The fund didn’t grow faster than inflation over the past year. Investments in tobacco companies British American Tobacco and Imperial Brands were mainly to blame. They performed poorly because of concerns about more tobacco regulation in the US.

The team hasn’t sold their investments though. They think they've got plenty of potential to grow from current levels. They also have customer loyalty and high advertising and manufacturing costs which make it hard for new competitors to enter the market.

The fund's longer-term record is more encouraging. Since launch in January 2009, the fund's grown 53.1%*, beating inflation by 20.2%. Past performance isn’t a guide to the future though.

Past performance is not a guide to the future. *Source: Lipper IM to 31/01/2019

Please note as this is an offshore fund you are not usually entitled to compensation through the UK Financial Services Compensation Scheme.

Pyford global total return Key Investor Information

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