e reason for moving to the current multi-manager approach.
We generally frown on such changes, as we prefer to see funds run for the benefit of current shareholders rather than to expand the business of the asset manager. Be that as it may, however, the new approach is eminently sensible. Manager Nick Pothier combines three generalist and specialist managers with varying investment horizons and styles, and we believe they complement each other well.
Quant manager GMO runs 40% of the portfolio and uses a blend of value, growth and momentum factors, taking measured bets relative to the FTSE All Share index. Their investment horizon of less than a year is down to the limited shelf life of quant signals. The other two skippers here are non-quant, and run unconstrained mandates. Mirabaud's runs 40% of the portfolio in a focused style emphasising the bottom rung of FTSE 100 and top-end of FTSE 250 indices. Leaning towards growth, the team expects their bets to pay off in 2-3 years. Small- and mid-cap value specialist Edinburgh Partners runs 20% of the fund and invests in deeply undervalued stocks.
The resulting portfolio has a slight value tilt within its blend disposition and is consistently overweight mid-caps relative to its Morningstar UK Large-Cap Blend Equity category. That hasn't done its returns any favours recently. After a long bull run, mid- and small-cap issues have stumbled badly during the credit crunch. Consumer and financials exposure also dented results, despite a move to cut back the latter, leaving the fund with subpar results in 2007 and thus far in 2008 relative to its Morningstar peers.
Nevertheless, we believe this proposition has merit. First, the styles and strategies in place complement each other well and feature experienced, high quality management. It's also worth noting that we like the use of just three managers--you really don’t need more to cover the UK equity market, and this is an efficient way to run the portfolio. Given all the other strong UK equity choices out there, there's no particularly good reason to opt for this one until it proves its mettle over a longer period, but we believe the new team has laid the foundation needed to make this a solid core holding.