The final stage analyses data to identify how other investors have structured their portfolios. “There are indications in the financial markets themselves,” says McQuaker. “For example, there is a whole body of data that looks at where money is flowing in the US mutual fund industry on a weekly basis.
“It is this kind of measure of the biggest positive and negative asset classes that tells you what the US investor is interested in.”
Macro mainstays
When he joined Henderson in 2005, McQuaker was tasked with complementing the multi-asset team’s experience of picking fund managers with a more top-down macro approach. To this day, the bulk of his time is directed towards this macro focus, with fund analysis coming in when market views are transferred into “getting the right tools for the job”.
“My team will choose the best investment vehicle based on how long we are going to invest,” he says. “For example, if a tactical view has a short shelf life we will use exchange-traded funds because we do not need the extra management fees or want to disrupt an actively managed fund by putting in money and then taking it out eight weeks later.
“That can be very damaging to a fund and affect client relationships.”
Instead, McQuaker picks “well-maintained, actively managed funds” that can be long held as portfolio mainstays.
For example, he has held Lindsell Train UK Equity since 2006, First State Asian Pacific Leaders since 2005 and the European Growth Henderson Fund for a similar length of time. As a general rule, he has at least one long-term holding in each region.
The funds that stick, says McQuaker, are the ones managed by people with plenty of experience in their sector, and the ones with strong medium to long-term performance.
“These products do not necessarily perform outstandingly in the short term but are usually strong when markets are under pressure,” he says. “If you look at our long-term performance, we have done better than the average fund in the good times but, more importantly, we have done better than the average in the bad; people really value that.
“Some competitors try to seek out better funds in which to invest but we spend that time on the macro side. Our approach to risk is different; we put a lot of emphasis on making sure we are properly paid for taking risk and, if things are well thought out, the downside is not that extensive.”
Emerging decline
In terms of risk, one asset class McQuaker has been cautious on for the past few years is emerging markets. Although growth in emerging markets beats that in developed markets, the gap between the two narrows with every quarter.
