A world of value

Each month we bring you the opinions of the managers of the funds most likely to be selected for pension portfolios through external fund links or Sipps. This month - SVM\'S GLOBAL OPPORTUNITIES fund

Although global growth is slowing, there are parts of the world that are not suffering economically, even if their stockmarkets are. Growth rates in emerging markets are still forecast to be materially above those of the developed world and with current account surpluses and limited borrowings, they are the ultimate winners of the current market turmoil. This is where we believe the most opportunity lies and the SVM Global Opportunities portfolio reflects this with exposure to these countries, especially Brazil, Russia and China.

When investing in emerging markets we take steps to mitigate the associated risks. We will take positions where we can see an exceptional opportunity and endeavor to minimize the potential for loss by investing in less risky funds. Investors might view private equity or hedge funds as risky, but it is possible to invest in these areas to improve return and reduce volatility, with a minimal increase in risk.

Private equity funds have a predicable cycle. At launch, investors are persuaded to invest in the fund to allow a manager to follow a particular strategy. Often that strategy is to buy companies that can be restructured to improve investor returns. Often these will be businesses that are not being run to their full potential and the private equity manager believes he can improve things. Unfortunately, it is normal that the bad investments will go bad before the good investments come good. This leads to an initial period of disappointment. Many investors throw in the towel during this period leading to a further erosion of the share price. Private equity investment requires timing and we look to invest at the bottom of the trough, usually more than 2 years into the fund’s life.

Hedge funds aim to hedge against the risk of adverse markets and we carefully select funds with the ability to provide predictable returns. For example, our timber fund, Cambium Global Forestry, invests in forests and it is hard to think of a less correlated product. Even if end markets soften for a period, the trees can be left to grow and become more valuable for another year.

We like our managers to have a strong incentive to outperform and equally to suffer if things don’t work. We want low base fees and have no problem with performance fees. Ultimately, it is the net return we are after. Finally we want to see the manager’s own money invested in the strategy so that they will also suffer financially if they fail to deliver.

Our preference is to buy quoted funds rather than Oeics as we believe it gives us the ability to harness the greatest available specialisation and liquidity. I am sure that readers will be aware of the problems associated with trying to realise units in property Oeics. In addition, buying quoted stocks allows us to buy assets below their underlying value, something that cannot be achieved with an Oeic. Recent market turbulence has left many investment trusts trading at a substantial discount to their true value, offering excellent long term upside potential.

Looking forward we would caution investors not to become too bearish, at least in the long term. Even though the US and even Europe may tip into recession, this is unlikely to last for long. In particular, the Federal Reserve has and hopefully European central banks will in time reduce interest rates and continue to inject funds to unblock the financial system. This takes time to work through and banks need to fully own up to their losses for investors to become more confident. Standing back to see the bigger picture will enable investors to benefit from opportunities that may be overlooked by others.

Donald RobertsonFunds Most Likely looks at

funds recommended by the panel of leading financial advisers which makes up the Adviser Fund Index

The SVM Global Opportunities fund was launched in March 2006. It is a diversified portfolio of specialist funds run by the same managers and following the same investment approach as the SVM Global Fund investment trust,

which has returned 234 per cent over the past five years. The fund offers exposure to the fastest growing global economies, hedge funds, private equity funds and other specialist funds.