2022 has been another volatile year for global investment markets, and a bruising one for many investors. Yet despite these challenges, the Casterbridge Hardy Managed Portfolio range has continued to deliver outstanding relative returns.
So we asked Portfolio Manager Julian Menges to share what he believes to be the main reasons that underpin Hardy’s success and why clients have a number of Reasons to be Cheerful
Brave enough to think differently
Investment markets tend to move in lock-step during periods of high volatility. But Julian recognises the value of resisting the herd mentality. As Julian explains “At Casterbridge, experience has taught us the importance of thinking differently to others, as well as challenging the market consensus. However, that doesn’t mean we position our portfolios differently for the sake of it. We’ve learned there’s a benefit to be gained from gathering different sources of information, applying different perspectives, and then challenging ourselves in ways that lead to better outcomes for our clients.”
No ‘group-think’
‘Group-think’ can occur in team structures where there’s an established hierarchy that doesn’t like to be challenged or questioned. It usually results in poor quality decision making, and ultimately lower investment returns. Not so with the Casterbridge team. As Julian puts it:
“Everyone within the team is expected to play a part in our decision-making process and put conventional thinking to the test. I love it when any member of the team challenges my thinking and ideas, and having that debate can also help me to develop my own thoughts further. The same goes for the financial advisers who use Casterbridge to manage their client portfolios, or are thinking about using us. This keeps us from being complacent and ensures we all stay at the top of our game.”
“But at the same time the responsibility for investment decisions will ultimately rest with me. We have a formal process in place that ensures no investment teams or individuals stray too far from our house view.”
Finding catalysts for change
From a strategic perspective, finding catalysts for change is one of the most important – and difficult – aspects of portfolio management. A good example that illustrates the challenges it presents can be found with the inflation debate last year. Back in the summer of 2021, with global markets coming out of the pandemic, the overall market consensus, alongside statements from central banks and investment banks, was that inflation would continue to be ‘transitory’.
But as Julian explains: “I was gathering research from a diverse range of sources, and this research suggested inflation would spike and ultimately head much higher than consensus, as rising demand was met with shortages and further disruption in supply chains. I put my ideas before our Investment Committee for discussion, and started to position portfolios for the return of inflation. This included a maximum underweight in bonds and using bonds with a shorter duration that would prove more resilient in a rising rate environment.
“By the end of 2021, UK inflation was running at over 5% and, over the last 12-18 months, our inflation hedging proved to be a significant contributor to our strong performance compared against other portfolios.”
“Better to be a day early than a minute late”
Once Julian and the Hardy team have formed an investment view, they believe that instead of trying to perfectly time the market, it is more important to invest to give portfolios the best chance of benefitting from sustained positive movements. Sometimes that means being early and waiting for an investment case to play out.
Being early takes courage and patience, but it’s an approach that can be highly rewarding. In Julian’s words: “You never quite know when markets are going to wake up to the change in the environment, but better to be even a few months too early than be caught out and have to make hasty investment decisions when it’s already too late.”
Appropriate downside protection – because clients don’t like losing money
Investment experience and client understanding are also two integral factors in Hardy’s investment approach. For Julian and the team, this comes down to one simple truth: clients don’t like losing money.
“The Hardy Portfolios benefit from Investment Managers with decades of investment experience across different market cycles. Keith Edwards and I have both been doing this for more than 30 years, while for Will de Baer, it’s been 20-plus years.
Julian Menges
As Julian explains: “We’ve all been investment managers across numerous market cycles, one of the key messages has always been that clients don’t like the experience of losing money. That feeling of loss aversion is very strong from a psychological perspective. So, this means we often place a greater emphasis on sheltering our clients’ portfolios from downside risks, even if this means sacrificing some of the potential upside.
We live in a world where our clients need us to take an appropriate level of risk in order to meet a specific risk objective. That can mean looking to grow the portfolio over the longer term, or perhaps to generate a consistent level of income. So, we take our role as guardians of our clients’ wealth very seriously and never lose sight of their overall objectives.”
If you would like to find out more about The Hardy Managed portfolio range and gain access to the portfolios on FE Analytics please contact our Relationship Manager Emma Foley.
Important Information
This video and article are for information only and do not constitute advice or recommendation and you should not make any investment decisions based on it. The views and opinions of this video and article are those of Casterbridge at the time of recording and writing and may change without notice. Any opinions should not be viewed as indicating any guarantee of return from investments managed by Casterbridge nor as advice of any nature. It is important to remember that past performance and the value of an investment, and any income from it,may go down as well as up and the investor may not get back the original amount invested.
