The US/China trade war has been cited as one of the biggest concerns among fund managers over the past year or so, with tensions between the superpowers continuing to escalate and neither side willing to back down. 
For example, Andrew Cole of the FP Pictet Multi Asset Portfolio recently told FE Trustnet that he couldn’t see a resolution to the standoff anytime soon.
“I think it’s probably going to be with us for a decade,” he said. “I think that this is the new ‘cold war’. The US is redefining and resetting how it engages with China.”
While many other managers share Cole’s concerns, Evenlode Investments’ Ben Peters and Chris Elliott are more sanguine, pointing out the trade war is just one of many political and macro issues that can have an impact on company profits and that managing these risks is one of the main responsibilities for fund managers.
MSCI China versus S&P 500 over three years
Source: FE Analytics
They added that they have been able to protect their £475m TB Evenlode Global Income fund by looking for and investing in companies that possess something “irreplaceable”.
“We insulate by looking for companies that are well-financed through generating ample free cash flow and having an appropriately strong balance sheet,” the managers explained.
“As importantly, the business needs to provide something that adds value to its customers that is hard to replicate elsewhere – this point means that even if something comes along like tariffs that affect, say, the price that is charged to customers, they’re likely to still want to buy.”
One holding they highlighted as an example is Quest Diagnostics, which carries out medical testing. The managers pointed out that demand from patients for its services is unlikely to wane in the event of a full-blown escalation in the trade war.
The medical testing market has recently seen government interference of its own, however, with the Protecting Access to Medicare Act (PAMA) capping the price that can be commanded for tests conducted under the government-funded Medicare scheme. Peters and Elliott said that while pricing pressure is generally undesirable for a business, in the case of medical testing it has the effect of placing disproportionate pressure on smaller players.
“[These] were only marginally profitable before PAMA and generate a greater proportion of their revenues from Medicare,” the managers explained. “Quest are able to consolidate the market due to their scale, offering a service that is both high quality and cost efficient.”
While Peters and Elliott see long-term resilience in healthcare, it is only the third highest weighting in their portfolio overall, making up 19 per cent of assets.
The largest sector portfolio allocation is telecom, media and technology at 35 per cent followed by consumer products at 32.30 per cent.
The analysts at Square Mile Investment Consulting & Research said that as a result of the managers’ strategy, this fund is likely to have more of a defensive profile then the broader global equity market.
“As such, it is likely to offer a level of downside protection in falling markets, but lag when markets are led by lower quality and more cyclically sensitive companies.”
They added that although the fund is new, the process behind it is not, with its investment approach followed throughout the firm and proving to be highly successful on TB Evenlode Income. However, with that fund now soft-closed, the analysts described TB Evenlode Global Income as “a natural extension to broaden the firm’s global product range”.
Performance of fund vs benchmark over five years
Source: FE Analytics
“We hold the team in high regard as reflected through our rating of the Evenlode Income fund, where they have successfully demonstrated that they can launch a fund, raise a significant level of assets and deliver strong long term returns in line with its objectives.
“The managers of this fund are highly ambitious and operate in a collegiate manner. Indeed, this fund's lead manager, Ben Peters, also serves as comanager on the Evenlode Income fund.”
Performance of fund vs benchmark since fund launch
Source: FE Analytics
TB Evenlode Global Income has made 31.35 per cent since it was seeded, compared with 18.65 per cent from the MSCI World Index and 11.61 per cent from the IA Global Equity Income sector.
It has an ongoing charges figure (OCF) of 0.90 per cent, just below its sector average.