New Star’s fund of funds team marks anniversary with consistent outperformance

The New Star fund of funds team celebrated its fifth anniversary of working together in January 2007. Led by Mark Harris, the team has delivered award-winning performance by employing its distinctive entrepreneurial style of fund of funds investment. The team’s successful investment process was recently recognised by financial industry magazine Real Adviser, which named New Star its “Multi-Manager Group of the Year” for 2006.

Mark Harris and Craig Heron took over management of the New Star Active, Balanced and Managed portfolios five years ago, since when they are all placed in the top quartile within their respective sectors. TheNew Star Active Portfolio has delivered a total return of 77.44% versus 39.21% for the IMA Active Managed sector index and is ranked seventh out of all 59 IMA funds over the five-year period. The New Star Balanced Portfolio and the New Star Managed Portfolio returned 56.53% and 58.24% respectively against the IMA Balanced Managed sector index, which rose 38.63% over the period.

There are few teams that have worked together for five years and fewer still managing funds that have delivered such healthy outperformance. The Active, Balanced and Managed Portfolios have not only demonstrated a high level of consistency over the last five years, they have also performed well on a discrete-year basis, outperforming their respective sector averages in both bull and bear market conditions.

Mark Harris, Head of New Star Fund of Funds, says: “While the management of risk is at the core of our investment process, we seek to achieve the best possible returns for investors. This comes through in these performance numbers.

“The team was built up with defined roles to work within a consistent, disciplined investment process and this has resulted in strong performance in both bull and bear markets. We are proud to have maintained our position as a market leader over the past five years, especially in such a growth area of the industry.”

Mark and Craig comment on how they have generated strong outperformance and the prospects for the remainder of 2007:

INVESTMENT OVERVIEW

A significant contributor to the portfolios’ strong performance has been the team’s decision to back managers who may not be well known to investors, benefiting from early investment in some of the best opportunities. On 25 July 2006 for instance, New Star’s funds of funds provided £11.9 million of seeding for the WH Ireland UK Growth Fund, managed by Martin Allistair. The return has been 11.2% in not much more than five months (at 29 December 2006).

A concurrent theme has been the team’s investment in emerging markets. In September 2005, the team seeded the Atlantis China Fortune Fund, which is managed by Yang Lui, because it recognised her as an excellent stock-picker of cheap growth stocks at a time when a more market-friendly environment was developing in the country. The conviction in this strategy and Yang’s ability has borne fruit, with returns of more than 90% in sterling terms since purchase. Brazil also remains a favoured market, with the HSBC GIF Brazil Fund purchased across the portfolios.

The team remains positive on commodities having taken large positions in oil across the portfolios. The team expects the crude oil price to prove more robust than expected and range between $55 and $65 a barrel. Energy stocks with healthy production profiles could, therefore, undergo a re-rating.

With the outlook remaining favourable, the portfolios remain positively positioned. Given the longevity of the equity rally, however, and potentially over-optimistic analysts’ forecasts they also retain peripheral holdings in more defensive areas of the market.

FUND RANGE AND PERFORMANCE

The fund of funds team manages nearly £1 billion in fund portfolios. The range comprises five global portfolios (Active Portfolio, Balanced Portfolio, Cautious Portfolio, Managed Portfolio and Tactical Portfolio), and three regional portfolios (American Portfolio, Asia Portfolio and European Portfolio).

The New Star Tactical Portfolio managed by Mark Harris
The New Star European Portfolio managed by Mark Harris
The New Star American Portfolio managed by Mark Harris
The New Star Asia Portfolio managed by Mark Harris
The New Star Active Portfolio managed by Mark Harris and Craig Heron
The New Star Balanced Portfolio managed by Mark Harris and Craig Heron
The New Star Managed Portfolio managed by Mark Harris and Craig Heron
The New Star Cautious Portfolio Unit Trust managed by Craig Heron

Of the seven portfolios with more than five years’ performance history, six are ranked in the top quartile of their respective IMA sectors over five years. The picture is even better since launch, with seven of the eight portfolios placed top quartile, of which three funds are first decile.