'Anything is possible': An investor overseeing $64 billion discusses 3 trades that are protecting her portfolio from unexpected shocks, and helping her crush most of her peers
- The BNY Mellon Global Real Return fund has bested 90% of its peers over the past year and returned 10% even with the fund manager's cautious outlook.
- Suzanne Hutchins, the investor who oversees the $64 billion strategy, told Business Insider what is keeping her in capital-preservation mode, and how she's earning returns while hedging her bets.
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Suzanne Hutchins came into 2019 expecting that it would be a turbulent year for investors.
About a year ago, the portfolio manager at Newton Investment Management, a BNY Mellon boutique, was stressing the need for investors to buffer their portfolios before volatility struck. This was just before the fourth-quarter swoon ended last year on a sour note.
After she bolted down her portfolio, some of those protections began to yield results. The $64 billion Global Real Return portfolio she manages has gained 10% over the past year, and it sits in the 90th percentile among funds in its peer group according to Bloomberg data.
Her portfolio decisions have been made through the lens of a bull market that's likely in its latter stages, and an economic cycle that is veering into contraction around the world.
She sees the risks of a market downturn as greater than the odds of a turnaround, thanks to a laundry list of challenges from the trade war to uncertainty around Brexit.
The natural response from policymakers, in her view, will be to pull out all the stops in order to prevent another financial crisis. Their response would not only need to address financial risks, but also the social inequality that has ramped up since the most recent crisis.
That leaves nothing off the table, including some sort of income redistribution scheme through taxation, or higher government spending based on Modern Monetary Theory ideals.
"I think anything is possible, actually, because if you think about it, the last 11 years since the financial crisis has been pretty unprecedented," Hutchins told Business Insider.
She added: "Anything goes at this juncture."
If policymakers unleash so-called helicopter money, investors could be caught off guard by an inflation shock. This possibility, and other nearer-term risks, are the reasons why Hutchins has remained in capital-preservation mode.
Against this backdrop, she discussed a few strategies she has adopted to earn returns while hedging against the unexpected.
1. She has increased exposure to gold as a direct hedge against higher inflation. Gold-linked assets including exchange-traded funds now make up 12% of her portfolio, up from about 2% previously. Her biggest holdings include Barrick Gold, Newmont Goldcorp, and Newcrest Mining.
2. Besides these traditional hedges against market turmoil, Hutchins is making some thematic bets that would generate income if they continue to grow.
For example, she has gained exposure to infrastructure-related projects where she says the return streams are usually stable. Her portfolio includes bonds from Network Rail and HS1, both major operators of railways in the UK.
3. She is also invested in renewable energy via US Solar Fund, a portfolio of power plants across North America.