Merrion Investment Managers: Focus on the Big Picture
Hellen Dalton
Hellen Dalton
Senior Investment Manager

Towards the end of July, we hosted a webinar with Philip Byrne (Deputy CIO and Head of Equity Investments) and Kevin O’Kelly (Head of Sales and Marketing) from Merrion Investment Managers (MIM) providing an update on their multi-asset fund range, the current positioning within the funds and their views on the market.

Performance
The Merrion Multi-Asset 70 fund had achieved a 10-year annualised return of 8.7% to the end of June and forms the basis for the lower risk Multi-Asset 50 and 30 funds (source: Longboat Analytics 30/06/10 – 30/06/20). The benchmark return for the same period was 6.2% per annum (source: Aon Hewitt Multi-Asset pooled fund survey as at 30.06.2020. Performance reflected is gross of AMC.)

Current Positioning
MIM were overweight equities in Q2 and are optimistic over the medium term. However, they have now moved to a neutral stance on markets in the short term given the speed of the recovery. This means that the equity exposure in the MIM 70 fund is currently 70%. The range in the MIM 70 can be between 80% (overweight) and 60% (underweight).

The fund is dynamic and, using their three-pillar process, they can actively manage exposure to regions and sectors. For example, the fund is currently overweight tech and industrials and underweight financials and healthcare. The fund managers take a broad and pragmatic approach. Their mantra is: invest for the long term but manage your risk and exposures appropriately over the short term.

Recent Changes
In April MIM felt that the market had become too depressed and was overlooking a key positive: the fiscal, monetary and regulatory response from governments around the world was swift and extensive in scale and scope. That presented short term opportunities in cyclical value stocks like banks and airlines, positions that have since been cut. They have also reduced their holdings in long term winners such as semiconductor companies.

Outlook
MIM see speed bumps ahead which is the reason they have moved to a neutral position. Philip pointed to the main areas of concern as:
• Continued deterioration in US-China relations
• A Democratic clean sweep in November
• US beginning to “reclose” during the continuing Covid-19 crisis
• The US fiscal cliff
• Commercial real estate and the future of offices and retail

Philip highlighted the end of US government support just as we are seeing an uptick in cases in the US and reclosing in some states which is spooking markets.

Another point that markets are focused on are the US Election and the chances of a Democratic clean sweep. Markets are wary of tax increases and business unfriendly policies.

Philip stressed that these are short term concerns about the market, they remain invested and would encourage investors to see the bigger picture. For example, Philip feels that Democrats leading both Houses would be good news for US growth because Biden wants to implement large scale infrastructure spending.

It is likely that the dollar will continue to weaken as Fed rates continue to fall. MIM believe Europe looks like the more attractive market now especially given recent moves by France and Germany which are developing companies as home grown success stores and advancing big brand national champions.

Key Themes
Zero rates and unprecedented fiscal expansion will drive investment into industries that will dominate in the next decade. The next 10 years will be about 5G. MIM currently like structural growth themes, cyclical value opportunities and “defensive but expensive”, companies that might be expensive at the moment but have defensive characteristics.

A few examples within these themes were highlighted: Nike & Paypal have benefited from the accelerated change in customer behaviour. Fanuc Robotics is a company that is benefiting from an increased dependence on automation within factories and Orsted is one of several renewable energy companies that is seeing an increased demand for their services.

Active Management
Markets do not go up in a straight line and not all sectors move in unison which is why active fund management is important. MIM provide investors with a range of funds to suit every risk appetite.
The funds are flexible, have daily trading, and a great track record. Over a 25-year period the MIM 70 fund has produced an average six year rolling return of 8.49% pa.

Summary
As a private client it is easy to find reasons not to invest, especially given the volatility we have seen so far in 2020. However, it is important to remember that if investing in MIM funds you are investing in real companies with real long-term trends that supersede the short-term noise. With a ten-year time horizon, the wider picture is far more upbeat for active investors. Zero rates and unprecedented fiscal spending will benefit the industries of the future: renewable energy, decarbonisation, electrical vehicles, tech and healthcare. The future leaders of the market are not necessarily today’s success stories. In 2006, 35% of the US market was financials & energy, they now account for 12% and tech makes up 55%. MIM offer long term investment and short-term risk management.

Hellen Dalton is a Senior Investment Manager at Cantor Fitzgerald Ireland.

Contact details for each individual team member can be accessed here on our website should you wish to speak with a Portfolio Manager or Account Executive.

Warning: Past performance is not a reliable guide to future performance. The value of your investment may go down as well as up.