David Fishwick is channelling his inner-Matthew McConaughey. While the US actor bamboozled viewers of cult crime drama True Detective by suggesting ‘time is a flat circle’, Fishwick’s own outlook isn’t too far off.
‘We have a phrase in our team which is not meant to be flippant: “time is not a relevant concept”,’ says Fishwick, who is head of macro and equities investment at M&G, as well as a Citywire AA-rated fund manager.
‘What I mean by that is, if I think bonds are expensive and we put positions in a portfolio to reflect that, we are then normally happy for it to sit there and work out over several years.
‘But, if I put it on this morning and I chat with you, go upstairs and bond yields are 70-80bps higher, for no apparent reason, then it would be odd for me not to respond. We are valuation and price-driven rather than time-driven.’
This also reflects the ‘episodic’ nature of the fund, which means the managers are fully prepared for major market shifts and look to tactically reposition around core themes to generate an alpha uptick.
‘We use medium-term or multi-year themes,’ Fishwick says. ‘This is where we see major misalignments, bubbles or deep traumas, that might persist or correct over several years.
‘We also respond to more highly episodic or shorter-term events, which can correct in a matter of weeks or months. Our portfolios tend to be a blend of those medium term elements and we are either scaling the size of the positions up and down due to the episodic volatility or using this volatility to make trades.’
Upping the ante
The vast bulk of investment is done through directional equity, government debt and credit, as well as some relative value and foreign exchange overlay. His current thinking has shifted from being long equities and long-dated government bonds to a more aggressive stance since the start of 2016.
‘We were long US 30-year treasuries and short JGBs and we also added some emerging market currency trades versus other lower yielding emerging market currencies. This reflected that multi-period valuation perspective.
‘Then we got the episodic volatility in January, which progressed into February and early March. The equity weight went from high 30s to 60% or so and this included some mining equity, which gained 25% in a very short space of time, so we removed a large portion of that. But, our equity exposure as a whole rose to 70%.
‘When government bonds in the US rallied in January, we removed that exposure and more recently opened a short position in US five-year bonds to the tune of 150% of NAV. There has been a quite meaningful shift in the risk characteristics of the portfolio to be long equity and short bonds much more aggressively. This approach is highly tactical given the steep rally we saw in US five-year bonds.’
Poised to perform
Fishwick says this ability to roll with the punches and react to market madness has proved hugely positive for recent performance. On a three-year basis to the end of January 2016, the M&G Episode Macro fund returned 15% in euro terms, versus the average Alt Ucits – Global Macro manager’s 2.7%.
‘The last two or three years have been fertile for us, not without interruptions, and that has been helpful. The unhelpful environment is when value doesn’t work and when our episodic forays into increasing position size don’t deliver either.
‘The episodic stuff comes good most of the time, but the other side can be tricky and you need to sit tight. One of the hardest things to do is to practice as well as preach patient opportunism,’ he says.
This article originally appeared in the April edition of Citywire Selector magazine.