Pyrford Global Total Return: January 2021 fund update

Kate Marshall | Tue 02 February 2021

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• Led by manager Tony Cousins, we feel the team are on the front foot and prepared to change the asset mix depending on prevailing market conditions
• We like their long-term, disciplined investment philosophy, which has been in place for many years
• The team behind this fund have a good record of sheltering capital when markets are weaker
• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

This fund aims to deliver a return ahead of inflation over the long term. While it won't shoot the lights out, the managers try to grow investors' wealth modestly over the long run, without all the significant ups and downs of investing fully in the stock market. We believe this makes it a great solution for a more conservative portfolio, or a way to bring some stability to a broader investment portfolio.

Manager

The team behind this fund is made up of a number of highly experienced investors. Tony Cousins leads the team and has worked at Pyrford for more than three decades. Some other members of the team have been at the group for more than two decades, and overall there has been little change within team, which we view positively.

There are 12 team members in total. Five members form the group's Investment Strategy Committee, which includes Bruce Campbell. He helped found the business and has more than 50 years' experience in the industry. Together the committee is in charge of broader decisions, such as the portfolio's asset allocation (the amount invested in various assets, such as shares, bonds and cash). The rest of the team helps with other research, such as the analysis of individual companies.

Process

The Pyrford Global Total Return Fund launched in 2009, though the same investment strategy has also been used to run other funds since the strategy was set up in 1994. We like the team's discipline in using this same process over this time.

Cousins and the team at Pyrford have three key aims. Their first is not to lose money over a 12-month period. Their second aim is to deliver an inflation-beating return over the long term, and thirdly, to do this with low volatility – fewer significant ups and downs in value than a fund invested entirely in shares.

To achieve this they invest flexibly in different assets. They aim to keep things simple though, so they typically focus on three main assets – shares, government bonds and cash. The shares are expected to perform well and generate most of the fund's growth over the long term, but they can be quite volatile in the short term. They can invest in companies across the globe, with the flexibility to invest in emerging markets, which increases risk if used. The bonds and cash are expected to perform differently, and bring some stability to the portfolio. Like all investments, the fund can fall as well as rise in value so investors could still get back less than they invest.

When the team is more cautious in their outlook, they invest more in bonds and cash, and when their outlook is positive they invest more in shares. They also invest more in shares when stock markets have fallen and they can buy shares at lower prices, which have the potential to rebound. The team has remained true to this strategy over the past year – when stock markets fell heavily amid the coronavirus-related turmoil, they took the opportunity to add to shares at more attractive valuations. The team increased shares to around 45% of the fund during March 2020, a level the fund last had during the 2008/09 financial crisis. This was reduced again to 40% in June 2020, and to 35% in January 2021 after equity markets continued their positive run, and the team found valuations less attractive.

Culture

Pyrford has been part of BMO Financial Group since 2007, though it maintains its independence. This means Pyrford can retain control over its investment activities, and stay true to the philosophy it's developed over many years. Overall we think it's a good thing it can still operate as a 'boutique' investment group.

We also like that Pyrford is home to a stable and close-knit investment team. There has been little turnover within the team and most members have spent the bulk of their investing careers at the group. This reflects well on the culture they have cultivated over the years. We think the team has done a good job at employing investors that share a similar mindset, which should ensure continuity in the philosophy. We would prefer their variable compensation to be more closely linked to fund performance, but we still think the team is well motivated to deliver returns for clients.

Tony Cousins is also Chief Executive Officer and Chief Investment Officer of Pyrford. This increases his responsibilities, but we are comfortable he spends most of his time on fund management and that he receives vital support from the rest of the team.

Like many investment managers, Pyrford has deepened the level of environmental, social and governance (ESG) analysis it carries out in its investment process. We think this framework should enable Pyrford to identify material ESG risks. This doesn’t mean it will automatically exclude companies with perceived ESG issues – Pyrford prefers to consider the wider investment case and use its influence as a shareholder to engage with companies and encourage change.

Cost

Pyrford Global Total Return is available at an annual ongoing charge of 0.58%, which includes a saving HL has negotiated for clients of 0.26%. The usual ongoing charge is 0.84%. Part of this discount is achieved through a Loyalty Bonus, which is tax free in an ISA or SIPP, but may be subject to tax if held in another account. Investors will have to pay an HL platform charge of up to a maximum of 0.45% per year on top of this.

Performance

The team has been successful in delivering modest long-term growth, with much lower levels of volatility than the broader global stock market. And they’ve done well at limiting losses in times markets have fallen. Since investing using this approach in 1994, they've only lost money in two calendar years – 2002 and 2018. This is an impressive achievement, though it's a reminder that even conservative funds can lose money.

The fund's official benchmark is RPI + 5% (RPI, or Retail Price Index, is a measure of inflation). The fund hasn't outperformed this benchmark since launch, but we think this is a high hurdle to beat for such a conservative fund. In recent years, both shares and bonds have performed so well that the team views both as overvalued, and the fund has been invested cautiously as a result. We therefore wouldn't expect the fund to keep pace with a rapidly rising market, and that's what we've seen in recent years.

Minimising losses in falling markets has supported the fund’s ability to deliver capital growth over the long term. The team’s cautious positioning worked well in the first quarter of 2020 – for the three months to the end of March 2020, the fund fell 4.8% compared with 16.1% for the global stock market. Over the whole of 2020, the fund achieved a positive return of 2.5%, after the team increased its investments in shares and stock markets subsequently recovered. The manager has also reduced the fund’s sensitivity to changes in interest rates, by focusing on shorter duration bonds that should prove more resilient if interest rates rise. Past performance isn’t a guide to the future.

While the fund’s conservative positioning will limit returns if markets continue rising, it should cushion against market falls, and we expect Pyrford to remain prepared to capitalise on any opportunities to add risk at more attractive valuation levels.

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

Past performance is not a guide to future returns. Source: Lipper IM to 31/12/2020.

Find out more about Pyrford Global Total Return, including charges

Pyrford Global Total Return Key investor information