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Weekly Manager Views

15 March 2019

At GAM Investments’ Weekly Investment Meeting held on 13 March 2019 the speakers were Kier Boley, who outlined the latest developments in the alternative investments space, and Charles Hepworth, who provided his latest views on Brexit.

Alternative Investments

Kier Boley

  • Our investment philosophy regarding fund of hedge funds (FoHF) has two key components that form the foundation of our approach to portfolio management. We believe that in-depth research into investment capabilities can help identify hedge fund managers who have the potential to generate alpha consistently. We also believe that portfolios of hedge funds can seek to control downside volatility by using multiple layers of risk management to understand and actively manage each specific element of risk. Strategies in the alternatives space can range from diversified to single-strategy portfolios, which can be accessed via pooled vehicles, to custom solutions and strategic partnerships.
  • Recent history has shown that many hedge funds have found it challenging to post consistent absolute returns and this has impacted the performance of the FoHF industry and prompted us to re-examine each aspect of our investment approach. The changes that we have made have been to exclude traditional beta from our FoHF portfolios and to focus on pure alpha strategies. We have also observed that FoHF often suffered over-diversification in the past and that performance can benefit from a reduction in the number of underlying holdings; in our view rather than 30 to 40 underlying funds, 5-15 should be considered the optimal range in terms of exposure. However, at the heart of our approach is our aim to identify managers who offer something unique, seeking out those that are difficult to access directly and have demonstrated robustness over time and a sustainable investment benefit over peers.

Managed Portfolio Service

Charles Hepworth

  • After another humiliating defeat in parliament on the adjusted deal PM May managed to wring out of the European Union (EU) in late night negotiations on Monday, we have entered the twilight zone for Brexit and the direction going forward is likely to be highly volatile. Next on the agenda was a test of Parliament’s appetite for leaving the EU without a deal – the so called ‘hard Brexit’. As expected, this free vote (with no Party directives) resulted in a resounding call against leaving without a deal. The UK’s exit is due to take place in just over two weeks – there is nothing like a short time horizon to help focus the mind.
  • A mere 24 hours after this vote, there was a second crucial free vote, this time to determine whether to ask the EU for more time to delay the 29 March deadline. The overwhelming call for an extension is perhaps the more damaging one for May, as this result, which still has to be agreed upon by the EU (and that is no foregone conclusion), could see Brexiteers resign from her government / cabinet. In our view, that could set off a dangerous chain of events which May would not be able to control and possibly lead to a fall of her government.
  • How this translates into market action is less clear – sterling has seen some positive traction with both votes passing and this could now potentially set the stage for the softest of all ‘soft Brexit’ outcomes. On the other hand, a government collapse would see this recent gain rapidly reversed. We believe sterling’s days as a safe haven are effectively long gone.

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Source: GAM unless otherwise stated.
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The views expressed herein are those of the manager at the time and are subject to change. Past performance is not indicative of future performance.
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