For Bill McQuaker, co-head of multi-asset at Henderson Global Investors, the construction of an investment portfolio is like putting together a jigsaw. However, unlike a jigsaw, the finished product represents more than the sum of its parts.
“The stages that lead to the creation of our portfolio all give separate indications of where there are vulnerabilities in the global market, creating a picture of where investment opportunities lie,” he says. “My task is to put this information together.”
The world’s a stage
McQuaker, a 10-year veteran of Henderson who previously cut his teeth in a variety of sales roles as part of what he describes as a “hybrid career”, says the investment process is formed from three stages of analysis: market structure; economic structure; and investor structure.
Stage one involves a yearly meeting in which McQuaker and his team of analysts look at global markets and the correlation between different asset classes from the point of view of valuation and medium-term growth.
McQuaker says the meeting’s position at the beginning of the investment process very much informs the level of its overall importance. “We see this as a strategic piece of the jigsaw; it doesn’t define our portfolios but directs our attention to the parts of the asset market mix that look most appealing in the medium term.”
To demonstrate his point, he compares the 2010 annual meeting, where low, attractive prices across all asset classes as a result of the global financial crisis enabled the creation of very diverse portfolios, with the most recent meeting.
“This year, the range of options has shrunk as prices have gone up. If you look at their potential over the medium term you begin to think this is not a great investment for our clients.”
Stage two takes a more tactical approach, where a number of indicators regarding the state of the global economy are analysed to give a greater idea of where opportunities lie.
Recently, this has involved analysis of monetary policy, with global markets heavily tied up with the European Central Bank’s €1trn ($1.1trn) quantitative easing programme and uncertainty surrounding the US Federal Reserve’s next rate setting move.
“Over the past five or six years, the market has been very sensitive, to the extent that central banks are seen as supportive of asset prices or to be behaving in a way that could be more destructive of global liquidity,” says McQuaker. “This affects growth, currencies and bond markets in differ-ent geographies.”
