GAM, one of the leading players in the ever-growing Newcits space, is planning to launch a Ucits III inflation-focused global equity fund based on a strategy that has returned 40% in seven months.
Subject to regulatory approval, the inflation fund will be a unitised version of an offshore portfolio that US-based asset manager Manning & Napier has been running on behalf of GAM private clients since May.
Manning & Napier has around $36 billion in assets under management and has teamed up with GAM in the past, running the firm’s $2 billion GAM Star US All Cap fund since 2007.
The new fund adds to the firm's wide range of Newcits offerings which include the GAM Star Diversified Market Neutral, GAM Star Keynes Quantitative Strategies, GAM Star Global Rates and GAM Star Absolute Global Emerging Markets funds.
Greg Woodard, portfolio strategist at Manning & Napier, said GAM’s private client division approached the US group to run the inflation strategy last year. Since its inception in May it has returned around 40%.
Woodard said Manning & Napier’s goal was to create a global equity portfolio that is attractive on a standalone basis and in an inflationary environment. However, he points out there are different types of inflation today, unlike during the 1970s when there was broad-based inflation and all the prices went up.
He said: ‘In a lower growth environment like we have today, where we have a lot of unemployment and spare capacity, there are pockets of price inflation. People traditionally think about inflation being broad based, and turn to gold, commodities and TIPS in these situations. But this product is really geared towards looking for those companies that have the ability to have real pricing power.’
Manning & Napier has a team-based approach with around 70 analysts working on its strategies. The top-down groups identify drivers that will support upward pricing pressures while the bottom-up analysts look at the companies best positioned to benefit from rising prices.
Some of the key portfolio themes are agricultural and fuel inflation. Woodard says the secular drivers of demographic growth and improved living standards have put pressure on limited arable land, while Manning & Napier is investing in companies that provide oil field services and equipment, to play fuel inflation.
‘We are investing in companies where you don’t have to bet on the price of oil, but rather where they will do well as long as there is an incentive to bring oil out of the ground,’ he says. Other themes include metals and mining and transportation.