Paul Craig on active management for a challenging world

This communication is issued by Quilter Investors Limited

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IMPORTANT INFORMATION

UK: Suitable for retail and professional clients.

Past performance is not a guide to future performance and may not be repeated. Capital at risk.

This communication is issued by Quilter Investors Limited (“Quilter Investors”), Senator House, 85 Queen Victoria Street, London, England, EC4V 4AB. Quilter Investors is registered in England and Wales (number: 04227837) and is authorised and regulated by the Financial Conduct Authority (FRN: 208543).

For further information and to access the KIID and prospectus for the Quilter Investors Cirilium Portfolios, please visit: www.quilterinvestors.com

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Focus is a publication that brings you face to face with a selection of the most influential asset managers in the UK and across Europe.

Amid the turbulence of the pandemic and the emerging recovery period, it has helped to adopt an investment perspective that is both long term and broad in terms of asset type, global market, and investment structure.

In this Focus, we hear from Paul Craig and Hinesh Patel who manage the Quilter Investors Cirilium multi-asset risk-targeted range of portfolios – celebrating its 13th anniversary this year. In our main feature, Craig tells us

how the range has adapted its strategy over the years while core characteristics remain the same – including a tendency to form long-lasting relationships with many of the fund managers the range invests in.

We are later joined by three of those fund managers, who tell us about their outlook for the global economy, their investment philosophy – and how they came to be part of Cirilium’s diversified investment strategy.

WELCOME

FOCUS

Fund manager Q&A• Nick Ford, fund manager,

Premier Miton Investors

• Andrew Jackson, fund manager, Premier Miton Investors

• Mike Riddell, fund manager, Allianz Global Investors

Meet the team

Glossary

The interviewPaul Craig, portfolio manager

Snapshot: Quilter Investors Cirilium Portfolios• Exploring the Quilter Investors

Cirilium Portfolios

• Inside the Cirilium Portfolios

• Performance

• Who are Quilter Investors?

Cirilium Q&APaul Craig, portfolio manager

5

C irilium’s success over the last 13 years has been driven by combining a long-term view with an ability to adapt to fast-changing

markets, says Paul Craig, who manages the range. The portfolios have grown from around £25m AUM in March 2009 to £8.6bn in March 2021, a period bookended by the global financial crisis and the pandemic, and characterised by the rise of passive, alternative and responsible investing.

“Constant evolution and our degree of diversification is what sets Cirilium apart from some of our peers. We have the flexibility and resources from management to go most places in the investment universe, not just in terms of asset type or geography but in terms of open-ended versus closed-ended funds and investing in entirely new funds and segregated mandates,” Craig says.

Front foot“Cirilium was one of the first risk-targeted, fixed-cost multi-manager ranges,” he explains, “with the idea that an investor can pick Cirilium and we do all the heavy lifting.” But over time what was something of an outlier strategy has become much more of a norm.

Which means, Craig says, “that our edge is now about being smarter in how we operate and manage volatility, and in being more adaptable to market change as we try to give investors both exposure to a broader, more diversified portfolio and that extra level of return with a lower level of risk.”

“We are aware that we’re charging an additional layer of fees for running a multi-manager portfolio,” he says, “so we’re continually trying to put together a portfolio of managers that people couldn’t readily construct for themselves.”

Seeding successTo understand key changes to Cirilium’s strategy over time, says Craig, it helps to pay attention to the investment structure. “For example, over the years we’ve broadened our focus from closed- towards open-ended funds for three reasons: closed-ended discounts narrowed, open-ended funds became cheaper, and our own Cirilium portfolios grew in size.”

“We also have the flexibility of investing in segregated mandates so we can create new

funds. Because of the increasing size of Cirilium, we’ve been able to

go to managers like Charles Montanaro and say look,

we’ll help you launch a new fund that would offer our clients a great opportunity, with one recent example being Montanaro Better World in 2018,” he says.

Over the years, Cirilium has also broadened

the type of asset in its toolkit, for example by paying

more attention to alternative exposures, including long-short equity.

“That part of the market has historically been largely reserved for sophisticated pools of capital such as sovereign wealth funds,” says Craig, “but again we can go in as cornerstone investors using Cirilium’s scale and expertise.”

Long lensSome things have remained the same. “With Cirilium, the focus has always really been on investing for the long term – finding managers where there’s trust and transparency and working with those managers through economic cycles, through good times and bad,” says Craig. “We will buy into managers who are looking for growth for years to come, not just the next six months.”

Taking the long view amid constant change

Being focused on meeting investor needs, means we never stop learning, says Paul Craig

Paul Craig, portfolio manager THE INTERVIEW

Constant evolution and our degree of diversification is

what sets Cirilium apart

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“We invest with people we know and trust and we want an open dialogue,” he says. “If they’ve identified an issue, we want them to come to us – we’re always trying to eliminate the negative surprise.”

Many of the relationships the team have go back decades. “If you look at the portfolio,” says Craig, “perhaps half are funds we’ve supported with a day-one exposure or became involved with when they were small.”

Core culture The wider culture of each fund management company is key. “Unless a manager likes what they are doing and it’s ingrained within the culture of the company, it’s not sustainable,” says Craig.

The team also make selective shorter-term investments and here the investment idea, rather than the manager and culture, tends to be the driver. “For example, companies with higher, sustainable levels of dividends could come back into favour, so we recently expressed this more tactical trade through a passive holding,” says Craig. Using a passive exposure provided a cheaper yet still effective way to access the idea without paying the price of an active manager.

Portfolio positionA key part of Cirilium’s own culture is to keep

to reduce market volatility. The alpha we are trying to extract via our managers can be incredibly difficult to time – you have to be there through bad times as well as good, providing we still have conviction in the manager.”

“When we look at the performance of Cirilium over the years,” he says, “it’s been achieved by getting more things right than wrong. It’s not based on one manager doing well or one regional bet that’s done well.”

Flexible freedom “Diversification combined with our flexibility help make Cirilium’s approach distinctive – we are not afraid to have a portfolio that’s very different to the index,” says Craig. “For example, the US is the highest regional weight in our portfolio but, as of

the first quarter of 2021, we don’t have any S&P500 passive indices in there because the exposure is far broader than just that index.”

Craig is really looking for manager alpha generation, and the inclusion of passive indices could weight the portfolio towards sectors such as the US tech giants and potentially create a more momentum-driven strategy. “Our US exposure is made up of global funds, dedicated US funds, sector specialists and listed private equity through closed-ended funds – a broad range of exposure,” he says.

With its continuing belief in active stock pickers, long-term manager relationships, and multi-layered diversification, says Craig, “Cirilium is perhaps the antithesis of the 60:40 passive trade.”1

Shift towards open- vs closed-ended

funds

Seeding more new funds

Growth of segregated mandates

Growth in alternatives

Responsible investing initiatives

Paul Craig, portfolio managerTHE INTERVIEW Paul Craig, portfolio manager THE INTERVIEW

Cirilium’s five key changes over the last 13 years

With Cirilium, the focus has always been on investing for the long term

an open mind. “In terms of where new manager ideas come from, we behave like a sponge and absorb information from everywhere,” says Craig, “including in-house Quilter research team recommendations and asking the fund managers we’ve invested in about who they see as their primary competitor.”

Dialogue also helps when deciding whether to adjust a core holding. “A lot of our work is understanding what the manager hopes to achieve,” says Craig, “for example, if they go through a period of underperformance is it for stylistic reasons that we are comfortable with? Do they tend to sell or hold if a stock hits a price target, and what does that do to their exposures?”

The team then relate this back to their understanding of Cirilium’s own exposures and what they themselves are trying to achieve, “which in turn can lead to the position sizes of our core holdings ebbing and flowing over time,” he says.

Course correction“Cirilium is effectively a supertanker,”

says Craig, “so we make course corrections rather than

180 degree turns. Once you identify a fantastic

investment talent, you don’t want to be chopping and changing that exposure except perhaps to use shorter-term tactical decisions

As we move through 2021, the ‘holy trinity’ argument for holding bonds in a portfolio – namely the potential for income, capital gains and portfolio diversification – is diminishing. But the reason for holding bonds is the same as it’s always been; even in this seemingly arid environment, there’s still money to be made.

Our approach to bond markets has always been a simple one: to seek returns through innovation and flexibility. In practice, this means investing in a broad range of asset classes, strategies and investment structures.

This means that, under the bonnet, our return sources look a little different to ‘traditional’ fixed-income indices. In government bond markets, our managers take a flexible approach and adapt to market opportunities as the economic outlook evolves. In credit markets we look for managers who can seize on pricing opportunities across capital structures, sectors and geographies.

At the margins, we also allocate to alternative fixed-income managers in areas like life biosciences or small business financing to provide

more uncorrelated income streams.

While the old adage “picking up pennies in front of a steamroller” has never seemed more apt for conventional bond investors, our returns-driven, actively-managed approach has the goal of continuing to deliver consistent and worthwhile returns for our investors.

Where now for fixed income?

1That is, the antithesis of the traditional portfolio mix of 60% equity and 40% lower risk bonds, implemented using modern passive strategies.

Hinesh Patel, portfolio manager, tells us about the role he sees for fixed income

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SNAPSHOT SNAPSHOTQuilter Investors Cirilium PortfoliosQuilter Investors Cirilium Portfolios

1The volatility range is a target, based on long term actuarial assumptions and the portfolio is managed to stay within this range most of the time. The volatility range is regularly reviewed and may change from time to time

due to changes in these assumptions but will remain within the limits laid out in the prospectus.

2Asset allocation as at 30 April 2021. 3Flexible bonds are funds that are not restricted to invest in specific bond types.

Five multi-asset portfolios, each managed with a different investor profile in mind

An actively managed solution using manager conviction to achieve a globally diversified portfolio of investments

Broadly diversified to help spread investment risk and aiming to reduce short-term volatility to achieve long-term growth objectives, within specified risk parameters

Use the most effective investments available, including funds and investment trusts, to access traditional investments such as equities and bonds as well as alternative asset classes such as infrastructure and renewables

Note: The recommended time horizon for holding any of the portfolios is at least five years

The Cirilium range of multi-asset portfolios adopts an active management style with a long-term investment horizon, to choose the right investments for the portfolios at the right risk level.

The portfolio managers can allocate across a wide range of asset classes, which helps to spread investment risk while the active management of the portfolio aims to manage volatility.

Evolution, not revolution, has been the team’s mantra, including gradual adjustments to the asset allocation so that the client experience continues to be as expected, depending on the chosen portfolio.

Exploring the Quilter Investors Cirilium Portfolios

Equity

UK

US

Europe ex UK

Japan

Global

Asia Pacific ex Japan

Emerging markets

Private equity

Fixed Income

Global bond

Investment grade

Flexible bond3

Alternative income

High yield

Emerging market debt

Alternatives

Macro

Global alternatives

Property

Alternative fixed income

Event driven

Long/short

Infrastructure

Cash

Inside the Cirilium Portfolios2

Decreasing risk

Increasing risk

Our Balanced portfolio’s underlying investments will be broadly diversified. The target volatility range is 6.5% to 9.6%.1

Our Adventurous portfolio’s underlying investments will be broadly diversified. The target volatility range is 15.9% to 19%.1

Our Conservative portfolio’s underlying investments will be broadly diversified. The target volatility range is 3.3% to 6.5%.1

Our Moderate portfolio’s underlying investments will be broadly diversified. The target volatility range is 9.6% to 12.7%.1

Moderate portfolioBalanced portfolio Conservative portfolio Dynamic portfolio Adventurous portfolio

Our Dynamic portfolio’s underlying investments will be broadly diversified. The target volatility range is 12.7% to 15.9%.1

An actively managed solution using

manager conviction to achieve a globally diversified portfolio

of investments

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Quilter Investors Cirilium PortfoliosQuilter Investors Cirilium Portfolios

1 The performance comparator is an index or similar factor against which a fund manager invites investors to compare a portfolio’s performance. The IA Mixed Investment 20-60% Shares, 0-35% Shares, 40-85% Shares and Flexible Investment are

considered appropriate on the basis that the portfolios’ equity exposure over time is expected to be similar to that of the average fund. 2 Adventurous not included as it does not have a 5-year track record as it was launched in 2017.

Source: Quilter Investors, data since inception to 31 March 2021. Performance net of fees of the R Acc share class, rebased to 100. Note: Cirilium Balanced, Moderate and Dynamic launched in 2008. Conservative launched in March 2012.

Over the years, it has been lots of small successes as opposed to a few big blockbuster moments that have enabled the portfolios to consistently outperform their relevant performance comparator over rolling five-year periods since launch.

The Cirilium performance comparators have been selected from the Investment Association (IA) sectors, depending on the appropriateness of the sector to the portfolio’s investment strategy.

The relevant sector can then be used as an appropriate comparator to assess the performance of the portfolios, in line with their investment objectives, over the longer-term period of five years or more.

SNAPSHOT SNAPSHOT

Past performance is not a guide to future performance.

Performance

Who are Quilter Investors?3

Percentage of rolling five-year time periods where the respective Cirilium Portfolio outperforms its relevant IA performance comparator1

Cirilium performance since inception vs comparator peer group2

Cumulative and discrete calendar year performance

Portfolio % IA Comparator

Cirilium Conservative 90% Mixed Investment 0-35% Shares

Cirilium Balanced 97% Mixed Investment 20-60% Shares

Cirilium Moderate 88% Mixed Investment 40-85% Shares

Cirilium Dynamic 91% Flexible Investment

Cirilium Adventurous N/A2 Flexible Investment

1 year

3 year

5 year

Since launch

2020

2019

2018

2017

2016

Cirilium Conservative 21.9 9.8 28.6 51.7 5.1 7.8 -4.7 5.8 13.4IA Mixed 0-35% Shares 12.2 10.9 22.4 44.8 4 8.8 -3.4 5 9.1

Cirilium Balanced 29.5 14.3 40.4 125.8 5.5 11.6 -7 9.5 15.4IA Mixed 20-60% Shares 20.1 14.7 30.7 80.2 3.5 12.1 -5.1 7.2 10.6

Cirilium Moderate 38.1 18.3 50.9 172 7.2 14.3 -9.1 11.6 18.1IA Mixed 40-85% Shares 26.5 21.8 45.4 106.2 5.5 15.9 -6.1 10 13.3

Cirilium Dynamic 44.9 20.9 57.1 181.7 7.6 17.2 -11 13.4 18.9IA Flexible Investment 29.4 22.9 49.9 103.1 7 15.6 -6.6 11.1 14.2

Cirilium Adventurous 48.6 22.4 - 23.4 8.1 15.1 -9.5 - -IA Flexible Investment 29.4 22.9 - 23.1 7 15.6 -6.6 - -

Quilter Investors is part of Quilter plc, a leading provider of advice, investments and wealth management both in the UK and internationally, managing £119.9bn4 of investments on behalf of over 900,000 customers.

Quilter plc is listed on the London and Johannesburg stock exchanges.

3 Source: Quilter Cheviot as 31 March 2021. Hours of research and meetings based on estimates over last 12 months. 4 As at 31 March 2021.

Source: Quilter Investors as at 31 March 2021. Total return, percentage growth, net of fees of the R Acc share class rounded to one decimal place. The Cirilium Conservative Portfolio launched on 30 March 2012; the Cirilium Balanced Portfolio launched on 2 June 2008; the Cirilium Moderate Portfolio launched on 2 June 2008; the Cirilium Dynamic Portfolio launched on 2 June 2008; and the Cirilium Adventurous Portfolio launched on 1 June 2017.

11strong team of

research analysts

17,000hours of research

undertaken

40,000+funds in the research

universe

1,000hours of meetings

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 202050

100

150

200

250

300Quilter Investors Cirilium Conservative RQuilter Investors Cirilium Balanced RQuilter Investors Cirilium Moderate RQuilter Investors Cirilium Dynamic R

IA Mixed 0-35% SharesIA Mixed 20-60% SharesIA Mixed 40-85% SharesIA Flexible Investment

Paul Craig, portfolio manager CIRILIUM Q&A

Can you name a key theme that has shaped your investing over the years? The coronavirus market challenge has helped to push the concept of ‘quality growth’ companies into the spotlight, but it’s been one of the foundation stones of the Cirilium proposition ever since it was first launched in 2008.

To us, it’s about holding a core allocation in managers who target companies with the ability to grow earnings over time; the kind of companies that have a demonstrable future. We like to think that it’s a bit like having tomorrow’s winners in the portfolio today.

How does the search for quality growth drive your manager selection?It means we’ve always focused on finding managers with the freedom to look outside the confines of the main market indices which are, by nature, dominated by the largest beasts in the jungle. In all likelihood, the next generation of mega-caps are still on the ‘nursery slopes’ of mid-cap indices.

This is certainly the case with the next generation of leaders in nascent industry sectors such as bio-tech, electric and self-driving cars, alternative energy, ‘big data’, 5G and the burgeoning number of new industries it stands to nurture such as the ‘internet of things’.

Whenever we find a manager with proven acumen in spotting tomorrow’s winners, the plan is pretty much to hold on to these positions indefinitely.

Do the best quality growth managers have anything in common?Each has their own investment process, but they all tend to use rigorous proprietary research and modelling to identify highly cash generative companies; they also look further out than the average investment manager, for example in terms of checking whether a company has a pipeline of new ideas; and they are unwilling to pay too much for their growth opportunities. Their motto might be ‘growth, but not at any price’.

Investing in alternatives can strengthen diversification but does it offer additional benefits? The one free lunch in the City really is still diversification and we have exposure to most if not all asset classes. But it’s also a question of how we implement that and how we tilt the portfolios when we chase an opportunity – and here alternatives can really help.

For example, do we see potential for volatility in equity markets going forward? If we do, maybe a good way of profiting from stock-picking opportunities is to use a long-short manager, so that we can try to generate alpha without being too long – or at other times too short, or significantly underweight – in equities.

Does Cirilium have special strengths when investing in alternative strategies? It has often been crucial to be able to go in as the cornerstone investor. Also, alternatives can be many different things but a common denominator tends to be the performance fees. We can negotiate on that and examine the basis on which the performance fee is charged to try to avoid paying for beta.

For example, we have a tendency to go for market neutral managers, who net out the long and short and so may have very little actual market exposure. If we want to make beta calls or make a call on market direction, we’ll do that long-only. We don’t need to pay an alternatives manager for that.

Paul Craig talks us through

three key aspects of Cirilium’s strategy – quality

growth, alternatives and the ongoing integration of

responsible investing

The next generation of mega-caps are

still on the ‘nursery slopes’ of mid-cap

indices

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How are you responding to another feature of today’s markets – the rise of responsible investing? Governance has always been a key part of our investing because of the long-term nature of what we’re looking to achieve. What’s really changed is that it is no good us simply telling clients that we invest responsibly – we have to track and articulate what we are doing.

That has to come from the top because it requires resources. For example, Quilter Investors now has a head of responsible investment, an Environmental, Social and Governance (ESG) analyst and an ESG data analyst. That is helping us flag areas where we might need to go and challenge a fund manager.

How important is that kind of engagement? Engagement is key. We tend to be able to engage at a more practical level with our closed-ended funds because, for some of these funds, we’re quite significant investors. For example, a property fund recently asked for our help in devising their remuneration policy.

But this is not only about direct engagement with our managers. As a multi-manager, we are also encouraging our managers to engage with their underlying companies to make changes for the better.

We want managers not just to vote against things, but to actively engage with companies and say right, this isn’t necessarily acceptable, so now we want to work with you to devise something that is.

Is your motivation to improve long-term returns or is it more about improving stewardship? It may lead to better long-term returns but I think it’s much more about the fact that our fund managers are stewards of our capital and we want good stewardship.

Many of the fund managers we work with have always been focused on the quality and risks of the businesses they invest in, and the quality of the management, even if they didn’t use ESG terminology. I guess the difference today is that

we’re starting to put new words around it, and track it, and see more active engagement – the once quiet conversations are featuring more prominently.

How are you coping with the ESG information challenges you face as a multi-manager? The ESG dashboard that’s been created internally is quite a significant step because it sucks in data from all the portfolios, in a more efficient and holistic way. The challenge was that if, say, we have 50 managers and they’ve got 50 stocks, we end up trying to monitor 2,500 companies – more if we count the passive funds.

So, I think the new dashboard may prove to be quite a sea change in terms of our responsible investment analysis.

Paul Craig, portfolio managerCIRILIUM Q&A CIRILIUM Q&A

The new ESG dashboard may prove

to be quite a sea change in terms of our responsible investment

analysis

Head of responsible investment at Quilter Investors, Eimear Toomey explains why engagement by portfolio managers with the external fund managers they hold, can help investors.

As a multi-asset investment team the strength and breadth of our relationships with our fund managers and their businesses is a vital quality in building long-term sustainable returns as it enables us to ask questions and receive honest answers that can help direct our investment thesis.

This relationship means that we also have the potential to make our voice heard and perhaps make a difference to the direction our underlying managers might be considering, which could lead to better and more sustainable long-term returns for investors.

We have always been focused on building these trusted relationships and this sits alongside a hands-on approach to voting; be that actively engaging with our managers on voting decisions they make on our behalf, or our direct engagement and voting with our closed-end fund holdings. Taking part in voting can be a key catalyst for driving change when necessary.

In evolving our approach, we have developed capabilities to support broader engagement with managers.

This includes more of a focus

on the ‘E’ and ‘S’ aspects of ESG, along with our well-established approach to governance. It also means we are increasingly engaging with managers on pillars such as transparency and reporting, ESG risk and controversial exposures, and thematic areas, as well as encouraging the managers that we invest with to take a robust approach to ESG integration.

The importance of active engagement

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Can you offer a brief sketch of your fund? Our fund tries to capitalise on the superior long-term returns available from investing in medium and smaller capitalised US companies, which have the capability to grow more quickly than some of the popular mega-sized companies.

Our strategy recognises, however, that there are periods when smaller companies can underperform. As a result, we designed the fund with the flexibility to adjust its exposure to large

money for buy and hold investors. I do not try to forecast the economy or stock market because I believe the time is better spent trying to find innovative young companies to invest in.

I went to a very competitive primary school where every two weeks we had ‘fortnightly orders’ which showed who was top of the class in each subject and who was bottom. It was perfect training for fund management as our funds’ positions relative to peers are published every week.

What might be the key features of the hopefully recovering global economy? In the US, rocketing consumer spending is likely to be a key driver of better-than-expected economic growth this year. Funds that are genuinely active should do well here because portfolios can be biased towards providers of non-essential goods or services in key leisure sectors. These funds do not need to hold the big index constituents because the managers have more freedom to invest away from the indices they are compared to.

Lockdown has allowed savings levels to swell and the release of pent up demand should result in explosive earnings growth for the entertainment and travel sectors. I think many of the best investment opportunities could be found in smaller-sized domestic cyclical companies, which are those affected by changes in the economy and

or small stocks according to market conditions so that we could still potentially provide attractive returns to investors in the event of periods of strong outperformance from larger cap stocks.

How did you form your key views on investing? I am a small cap fanatic and have focused on this space from very early on in my career after reading Peter Lynch’s famous investing manual “One Up on Wall Street”. He illustrated how sensibly chosen smaller growth companies could make a lot of

where valuations look very attractive compared to the mega cap technology companies that have driven the majority of the returns for the major indices in recent years.

How did you first meet the Cirilium managers?Our Business Development Director, Neil Bridge, introduced us to Paul Craig who became a cornerstone investor for the launch of our fund. His approach is quite unique in the industry

because he is prepared to back new funds at launch rather than waiting for the

establishment of three-year track records before investing. This

seems quite shrewd because the fund managers are very aware that performance needs to be good coming out of the gate, or the product will not get off the ground.

Paul was looking for a highly differentiated US

fund; many funds in the peer group in which the

Premier Miton US Opportunities Fund resides are heavily exposed to

the biggest companies in the benchmark whereas our fund owns few of the major index holdings. Our strategy therefore helps to highlight Cirilium’s ability to ‘think outside the box’ in terms of fund selection.

The views in this article are those of the fund manager at the time of writing and do not constitute advice. These views are subject to change and do not necessarily reflect the views of Premier Miton Investors.

Risks - Reference to any particular fund does not constitute a recommendation to buy or sell the fund. The value of investments may fluctuate which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.

FUND MANAGER Q&APremier Miton US Opportunities Fund

I am a small cap fanaticNick Ford, fund manager, Premier Miton Investors

Nick Ford tells us about the Premier Miton US Opportunities Fund and how it found its way into the Cirilium Portfolios

Our strategy highlights Cirilium’s

ability to ‘think outside the box’ in terms of fund

selection

1918

Premier Miton UK Value Opportunities Fund

Can you briefly characterise your fund? For the Premier Miton UK Value Opportunities Fund, I select investments on a company-by-company basis, and rather than chasing dreams of heady growth, which can prove expensive if things go awry, I prefer situations where prevailing modest expectations can be exceeded; a case of under-promising and over-delivering, I guess.

The heart and soul of the fund is therefore designed to be characterised by underachieving

want to hit the right notes, but we want to do so in the right order.

I look to be in a position to benefit from a variety of positive developments – restructuring, recovery, and re-rating – rather than find several apparently individual investments sunk by a single event. It also means that, rather than simply putting the most money where I see the most upside, I also try to build an appreciation of the potential downside impact if things do not turn out as planned.

What might be a key feature of the economy as we move forward? I suspect we’re all going to become inflation watchers over the coming months because if inflation picks up and proves sticky, it could trigger a profound change in portfolios currently shaped by the relentless decline in inflation and interest rates over recent years. That could be quite a challenge, but we had the full range of investing environments last year and many active fund managers performed well and I sincerely hope that we can continue to demonstrate we are still relevant and worthwhile.

Performance aside, what do you think your strategy brings to Cirilium? I would like to think the fund brings diversity to the Cirilium range on a couple of levels: first, by diversifying away from the main indices thanks to its significant overweighting to small and medium sized companies; and second, by bringing a thought process which is usefully different from the majority of funds managed with growth and quality as their calling cards.

How did you first meet the Cirilium managers?I first met Paul Craig when I took over management

but inherently sound companies where I think management action can bring about a lasting improvement in operating performance which can, in turn, trigger a re-rating of the shares.

What other views inform your style of investing? As well as conducting individual company analysis, I take care to try and make sure the chosen investments blend well. It’s a bit like that old Morecambe and Wise sketch – not only do we

of the fund in July 2016. They were already major investors in it and I had to make my case for how I identify and analyse investment opportunities and how I blend them into a portfolio.

We catch up two or three times a year face to face, as much to chew over general investment and economic matters as to talk about fund specifics. As we catch up regularly and share information I would already have answered any pressing ad hoc questions as they arise.

The views in this article are those of the fund manager at the time of writing and do not constitute advice. These views are subject to change and do not necessarily reflect the views of Premier Miton Investors.

Risks - Reference to any particular fund does not constitute a recommendation to buy or sell the fund. The value of investments may fluctuate which will cause fund prices to fall as well as rise and investors may not get back the original amount invested.

I try to make sure the chosen investments blend wellAndrew Jackson, fund manager, Premier Miton Investors

Andrew Jackson tells us about the Premier Miton UK Value Opportunities Fund and what it brings to Cirilium

I suspect we’re all going to become

inflation watchers over the coming

months

FUND MANAGER Q&A

2120

Allianz Global Investors Strategic Bond Fund

What are the goals of your fund? We designed the Allianz Strategic Bond Fund back in 2016 to offer something different to the existing strategic bond fund incumbents. Our competitors tend to be heavily exposed to riskier corporate bonds at all times, and therefore usually behave like equities.

We say our fund is a bond fund that behaves like a bond fund, not like an equity fund. We have an explicit target to be uncorrelated to equities over a rolling three-year period, while trying to beat our benchmark, the Bloomberg Barclays Global Aggregate (GBP Hedged) Index.1 We are also trying to deliver asymmetry, meaning our up months relative to our benchmark are bigger than our down months.

What are your key philosophies about investing? We are big picture, global macro investors. We believe you can make more money by getting the macro asset allocations within fixed income correct, rather than by focusing on things like bottom-up credit research.

Philosophically, we’re value investors. We believe that risk premia generally mean revert, but with a skew. Most of the time nothing is going wrong, risk premia are low, and asset prices are relatively expensive. In these times, we’ll probably be more defensively positioned.

But when risk premia are high and everyone’s panicking, there is much more upside to being long of riskier assets, and despite what it feels like at the time, much less downside.

What might be the key features of the recovering global economy? It is almost a given that economic growth will shoot

the lights out over the next three to six months, as economies open up. Meanwhile eye-wateringly high year-on-year inflation is baked into the cake for Q2 and early Q3 this year, simply given the exceptionally low commodity prices in Q2 last year.

Looking longer term, the biggest problem we have now is with valuations. Risk premia almost everywhere have collapsed. If you look at corporate bonds, history suggests that the exceptionally tight credit spreads today are likely

to result in lower returns than simply owning similar maturity government

bonds. Meanwhile, rampant inflation is already priced in,

particularly in the UK, where long-term expectations are the highest since 2010.

However, we are far from convinced that growth will be as good, or inflation as

high, as markets suggest. After all, the experience of

most countries in previous decades is that higher debt means

weaker growth and lower inflation.

How did you first meet the Cirilium managers?We met Paul Craig over breakfast one cold morning in February 2019. The fund had less than three years’ track record at that stage and wasn’t on most peoples’ radars.

Paul was looking for something a bit different in his fixed-income bucket, while we were very keen to find an early investor who could help us to get our £75m fund up to scale (the strategy overall is now £4.3bn).2 The Cirilium team did their due diligence and decided to invest a few months later, which we really appreciated. In turn, hopefully we’ve managed to make a positive impact on their portfolios.

This page contains the views and opinions expressed by Allianz Global Investors.

We are big picture, global macro investorsMike Riddell, fund manager, Allianz Global Investors

Mike Riddell tells us about the Allianz Strategic Bond Fund and offers his views on economic recovery

The biggest problem we have now is with

valuations. Risk premia almost everywhere

have collapsed

FUND MANAGER Q&A

1 This fund uses the specified benchmark as a comparator. This means that investors should use this index to compare a fund’s performance. 2 Source: Bloomberg, 16/4/2021

Paul Craig

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60:40 trade This is where 60% of a portfolio is held in higher risk investments such as equities and the remainder are held in lower-risk and traditionally lower-yielding assets such as government bonds.

Alpha This is a term used to describe a manager or strategy’s ability to ‘beat the market’ and is often described as the excess return generated above a market/index. It is used alongside beta to assess the performance of a manager, stock or fund.

Alternative investments An investment that is not one of the traditional types of asset (stocks, bonds and cash). They are usually investments in assets with less of a connection to shares or bond markets, such as property, commodities and commodity funds.

Beta This measures the volatility of an investment and is an indication of its relative risk compared with the broader market. It is used alongside alpha to assess the performance of a manager, stock or fund.

Closed-ended funds An investment trust or a collective investment scheme with a fixed amount invested that issues a limited number of shares. They are traded in the same way as a share is.

Cornerstone investment An agreement by an investor to invest a set amount to help launch a new fund or strategy.

ESG factors The systematic and explicit inclusion of material environmental, social and governance (ESG) factors into investment analysis and investment decisions.

Long/short equity This type of strategy seeks to take a long position in underpriced stocks (hoping the price will rise) while ‘shorting’ (or selling) overpriced shares that are expected to fall in value.

Momentum-driven strategy Momentum investing is where investors buy assets that are rising in value and aim to sell them when they look to have reached a peak.

Multi-manager An investment strategy consisting of multiple funds managed by different specialists.

Open-ended funds A fund that creates new shares (units) whenever money is invested to meet demand and cancels shares (units) when sale orders (redemptions) are made.

Passive investing Broadly refers to a buy-and-hold portfolio strategy for long-term investment horizons, with minimal trading in the market. The most common form is index investing where investors replicate and hold a broad market index or indices.

Quality growth A strategy where managers target companies with the ability to grow their earnings over time; the kind of companies that have a demonstrable future.

Responsible investment A strategy or practice that incorporates ESG factors into investment decisions and ownership activity.

Risk premia The returns on an investment above the risk-free rate that, in theory and over the very long term, may compensate investors for taking a risk.

Risk-targeted fund A portfolio that aims to deliver strong risk-adjusted returns while remaining true to a particular risk level or profile.

Segregated mandates These are investment portfolios that are constructed to a company’s own investment guidelines but managed by an external manager. They allow the company to have greater control over its investments than an ‘off the peg’ fund by specifying the exact investment mandate.

GLOSSARYMEET THE TEAM

Paul is manager of the Cirilium portfolio range and has more than 25 years’ experience in the asset management industry. Today he is one of the UK’s most influential fund selectors, having been named a 2021 FE Alpha fund manager, and has provided seed capital to numerous new fund launches.

Hinesh is a portfolio manager for Quilter Investors on the Cirilium portfolio range. He joined the business in 2008 working in fixed income and macro as a strategist, an assistant portfolio manager and then a portfolio manager before joining the multi-asset desk in 2016. Hinesh has played an important role in developing the team’s investment capabilities and macroeconomics analysis. Before joining the business Hinesh was a senior analyst at Lehman Brothers.

Paul Craigportfolio manager

Hinesh Patelportfolio manager

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Bambos Hambi, chief investment officer

Helen Bradshaw, portfolio manager

Sacha Chorley, portfolio manager

Stuart Clark, portfolio manager

CJ Cowan, portfolio manager

Paul Craig, portfolio manager

Bethan Dixon, portfolio manager

Ian Jensen-Humphreys, portfolio manager

Hinesh Patel, portfolio manager

The Quilter Investors investment team consists of eight portfolio managers with substantial experience in managing multi-asset solutions along with more than 30 other investment professionals.

Meet the multi-asset investment team – a depth and breadth of talent

© 2021 Incisive Business Media (IP)

To find out more please visit quilterinvestors.com/cirilium

Active management for a challenging world