Pyrford Global Total Return: February 2023 update

• The fund is run by a very experienced team, the majority have more than 20 years industry experience, having worked at Pyrford for at least 10 of those
• We like their long-term, disciplined investment philosophy, which has been in place for many years
• Long term performance has been delivered with much lower levels of volatility compared to broader global stock markets
• The fund is on our Wealth Shortlist of funds chosen by our analysts for their long-term performance potential

How it fits in a portfolio

The Pyrford Global Total Return fund aims to deliver stable returns ahead of inflation over the long term and provide some shelter for investors' money in times of hardship. While it won't shoot the lights out, the managers try to grow investors' wealth modestly over the long run, without all the significant ups and downs of investing fully in the stock market. Like all investments it will still rise and fall in value, so investors could get back less than they invest.

We believe this fund could be a good option for a more conservative portfolio, or a way to bring some stability to a broader investment portfolio.

Manager

The team behind this fund is made up of a number of highly experienced investors. Tony Cousins leads the team and has worked at Pyrford for more than three decades. Cousins is also Chief Executive Officer and Chief Investment Officer of Pyrford. This increases his responsibilities, but we are comfortable he spends most of his time on fund management and that he receives vital support from the rest of the team. They help with other research, such as the analysis of individual companies.

Cousins is also helped by the group's Investment Strategy Committee, which he is a part of and also includes Paul Simons, Dan McDonagh and Suhail Arain. The committee is in charge of broader decisions, such as the portfolio's asset allocation - the amount invested in various assets, such as shares, bonds and cash. Overall, there has been little change within the team, which we view positively.

Process

The Pyrford Global Total Return Fund launched in 2009 and Cousins and the team have three key aims. Their first is not to lose money over a 12-month period. Their second aim is to deliver an inflation-beating return over the long term, and thirdly, to do this with low volatility – fewer significant ups and downs in value than a fund invested entirely in shares.

In order to achieve this, the team invest flexibly in three main assets - shares, government bonds and cash. They can invest in companies across the globe, with the flexibility to invest in emerging markets, which increases risk if used. It is hoped the shares will perform well and generate most of the fund's growth over the long term, but can be quite volatile in the short term. The bonds and cash are expected to perform differently and bring some stability to the portfolio.

When the team is more positive in their outlook, they invest more in shares. They also invest more in shares when stock markets have fallen and they can buy shares at lower prices, which have the potential to rebound. They have a structured approach to decisions about how much of the fund to invest in company shares or bonds, generally linked to high level market values. As an example, they use the overall value of the FTSE 100 as a guide. As this increases and decreases over time, it triggers the team to consider whether to increase or decrease the amount they have invested in shares.

2022 saw the team increase their exposure to shares, following falls in markets during the first part of the year. In June when the FTSE 100 fell back to around 7,000, the team took the decision to increase their investments in company shares to 40% of the fund, from the previous level of 35%. They reduced their position in government bonds at the same time, to fund this.

This means that at the moment, the fund has around 40% invested in company shares, 57% invested in government bonds and 3% in cash.

In terms of changes to their share holdings in 2022, the team sold their position in McDonald's. This had been held in the fund for a long time, but the valuation had increased to a level which meant the team felt further share price increases into the future were less likely. The fund invested in S&P Global, the US financial information and analytics company. This was a company that the team were already invested in via one of their other funds that focusses on shares and due to increased conviction became a contender for inclusion in this fund too. The company has a leading position in a number of markets such as ratings, indices and commodities, has provided a good dividend yield and is considered to have potential for share price growth.

Looking into the future, the team currently have a negative outlook and are concerned about the impacts of recession in many markets across the world. They think that getting inflation under control and back down to the target level of 2% that is set by many central banks, will require some pain for the economy. They think this pain will be felt through increased unemployment in many regions.

Please note as this is an offshore fund you are not normally entitled to compensation through the UK Financial Services Compensation Scheme.

Culture

Pyrford International was established in 1987 and previously owned by the Bank of Montreal. Pyrford is now part of Columbia Threadneedle Investments, the global asset management business of Ameriprise Financial Inc, following an acquisition completed on 8 November 2021.

Pyrford continues to operate as a fully independent boutique and retains control over its investment activities, staying true to the philosophy it's developed over many years.

We like that Pyrford is home to a stable and close-knit investment team. There has been little turnover within the team and most members have spent the bulk of their investing careers at the group. This reflects well on the culture they have cultivated over the years. We think the team has done a good job at employing investors that share a similar mindset, which should ensure continuity in the philosophy. We would prefer their variable compensation to be more closely linked to fund performance, but we still think the team is well motivated to deliver returns for clients.

ESG Integration

The team at Pyrford integrates Environmental, Social and Governance (ESG) considerations through a combination of internal analysis and specialist external independent research. They have one investment process across all portfolios, which focuses on quality, value and the long-term sustainability of earnings and dividends. They think sustainable earnings can only be achieved through responsible environmental and social practices and that shareholders only fully benefit from these at well-managed companies. Fund managers therefore assign an ESG rating to every stock they cover, derived by examining 15 factors from greenhouse gas emissions to health & safety and executive compensation. This rating forms part of their internal stock summary analysis, which is the output of their bottom-up stock selection process.

The team also use MSCI ESG reports. If a company's MSCI rating falls, an alert is sent to the relevant portfolio manager or analyst and the reasons for the downgrade are discussed in detail by the Pyrford investment team. When it comes to voting, Pyrford considers every resolution individually and casts a proxy vote on each issue with the best interests of clients in mind. There is a dedicated proxy voting portal on the firm's website, where details of how they voted on every resolution can be found.

The fund does not apply strict exclusions though and the team are happy to invest in some companies that others would consider uninvestable on ESG grounds. Examples include tobacco and oil companies. Overall, the expected return profile of an investment is considered more important, however we believe that the framework the team has in place allows them to adequately identify material ESG risks, which helps them pick companies to invest in.

Cost

This fund has an ongoing annual charge of 0.84%, but we've secured HL clients an ongoing saving of 0.26%. This means you pay a net ongoing charge of 0.58%. Part of this discount is achieved through a loyalty bonus, which could be subject to tax if held outside of an ISA or SIPP. The HL platform fee of up to 0.45% per year also applies.

Performance

The fund's official benchmark is the Retail Price Index (RPI). RPI is a measure of inflation. Since launch, it has outperformed this benchmark, but only marginally with the fund returning 71.02%* compared to RPI's increase of 69.28%.

The fund has delivered some growth since launch with much lower levels of volatility compared to the broader global stock market, limiting losses in times of hardship. Over this period, the managers have lost money in just one calendar year - 2018. This is an impressive achievement, though it's a reminder that even conservative funds can lose money. Past performance isn't a guide to the future.

Over the 12 months to the end of January, the fund produced a positive return of 2.62%. While this is lower than RPI over the period, this is a good outcome given the market environment of very high inflation, rising interest rates and the Russia-Ukraine conflict on the ground in Europe.

During 2022, some of the fund's best performing investments were BP, which benefited from the jump in energy prices. Tobacco companies Imperial Brands and British American Tobacco were also strong performers, with their relatively consistent earnings, and resulting dividend payments, being more attractive in a highly volatile environment. They did experience some losses though, with telecoms companies Telenor and Vodafone both having a challenging year. The fund's investments in UK government bonds lost value too.

While the fund's conservative positioning will limit returns if markets rise, it should cushion against market falls, and we expect the team to remain prepared to capitalise on any opportunities to add risk at more attractive valuation levels.

Past performance is not a guide to the future. Source: *Lipper IM to 31/01/2023.

Find out more about Pyrford Global Total Return, including charges

Pyrford Global Total Return Key investor information