Magellan Asset Management is one of three managers Generate uses to manage global equities (there are two other managers with specialist mandates). It is a global funds management business that is based in Sydney, Australia and had AUD93 billion in funds under management (as of 31 March).
We had a call with one of their portfolio managers last week and thought it worthwhile to share some of the insights he shared.
The management of risk is one of Magellan’s primary focuses. They look to preserve capital in difficult market environments. They are focused on outperforming their peers and market benchmarks during market pullbacks. This outperformance in weak markets has helped them be one of the top performing global equities fund managers in the world.
When it became clear that COVID-19 was not just a localised epidemic and that it would spread globally Magellan took decisive action. They repositioned the portfolio to better weather the impact of lockdowns and their lasting economic effects.
Magellan’s current view does not significantly differ from most of the investment experts we speak to: uncertainty on length and impact of lockdowns and risk of second waves is balanced off with the impact of fiscal/monetary policy interventions and new medical developments.
We particularly like Magellan’s approach to dealing with this uncertainty. Magellan has put a further risk overlay over the portfolio for the impact of COVID-19. They have reviewed each holding with a focus on: (i) how lockdowns would impact the company and (ii) how would the following economic recession impact the company. This allowed Magellan to verify that current portfolio construction suited the current environment.
It is important to note that Magellan is not looking to invest only in companies that will weather the shutdown and subsequent recession with ease. The focus is on understanding these risk factors and then where necessary tweaking portfolio composition to suit the current market environment. A good example of this is that they still own LVMH - the luxury brand owner. Magellan expects the lockdown and subsequent economic recession will act as strong headwinds for the company in the short to medium term. However, they believe the strength of its brands position it well for the long term, and notwithstanding a trimming of their position, they maintain a holding.
While Magellan increased cash holdings during the portfolio positioning, they also added to companies that they felt would do best during the shutdown and subsequent recession. A good example of this is Microsoft, which was the Magellan Global Fund’s largest holding as at the end of March. Demand for Microsoft’s products should be reasonably robust during the shutdown and the following economic recession given the essential nature and cloud accessibility of many of its products.