Why would you describe this fund as a 'one to watch' and how could the strategy work in investors' portfolios?
There is a diminishing set of options for investors seeking truly active exposure to North American equities. While many managers within the IA North American sector claim to be active, there is a distinct tendency to group around the largest index constituents to protect historic performance. We feel this trend is detrimental to the underlying investors in these funds, who are paying for active management when they might just as easily gain similar exposure much more cheaply through an ETF. By contrast, the VT Tyndall North American fund adopts a dynamic approach which results in highly differentiated portfolio positionings with an overall active share typically above 90%. Furthermore, as the fund continually adapts to materially changing market conditions, it is something that investors should look to own through a full market cycle; our edge is that the fund should never be "out of favour".
This strategy simply cannot be replicated by an ETF and has therefore captured the attention of investors attracted by its distinctively active approach in a market dominated by closet trackers. In consequence, the fund's assets under management have nearly tripled over the last 12 months.
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The portfolio is split into two equally weighted siloes - core and tactical. The core element is comprised of buy and hold ideas, capitalising on the benefits of compounding. We identify future industry leaders which are growing today and have clear pathways into the future, supported by bullish market trends and secular tailwinds.
We also fervently believe it is important to be dynamic across the business cycle, and this underlines our tactical process. We apply a quantitative model that tracks the rate of change of growth and inflation to identify which part of the cycle we are/are going to be in: i) Goldilocks ii) Reflation iii) Stagflation iv) Deflation. Each of these environments has different factor and sector exposures that work best within them and, because the model is predictive, we are always alerted to changing conditions. A fundamental overlay is then applied, and stocks selected based on this template. This is designed to mitigate the negative impact of opinion traps - "I am right, the market is wrong" - by managing style and factor exposure in the tactical portion of the portfolio, with the aim of significantly outperforming across a full market cycle.
The fund has been managed by Felix Wintle since launch in July 2017 and is extensively supported by non-bulge bracket external research houses, which we feel are more valuable for idea generation than a team of in-house junior analysts. As with all our funds, it is run autonomously and with conviction, in line with a well-defined philosophy and process.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
As would be expected given our differentiated approach, the portfolio bears little resemblance to its peer group. Within the tactical half of the portfolio, we began building up strong positions in cyclical areas of the market in November 2020 and have a zero weighting to technology as of March 2021. Within our core book, we do continue to hold differentiated tech stocks we consider to be future leaders with strong growth potential but have no exposure to well-owned mega cap names and are at present significantly underweight technology from a whole of portfolio perspective.
Our analysis indicates that energy, industrials, materials, and financials are due to disproportionately outperform in the current reflationary environment, exacerbated by the some of the starkest base effects ever seen. As our process enables more dynamic positioning, we have been able to build significant overweights in these sectors, something which separates the fund from peers.
As our model is predictive, we can be sensitive to any potential future changes in market conditions. Current signals indicate we could be moving into a more defensive environment later this year. Our approach means that we are ready to adjust the portfolio if those conditions are realised.
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