Still, Swan acknowledged the headwind of prolonged strengthening of the dollar: “The problem with a rising dollar is that it tends to suck liquidity out of the rest of the world because it is a safe haven, and that puts pressure on local economies, in particular emerging markets, that rely on dollars for funding or growth.
“China has been dealing with this for a couple of years, and the way they offset that liquidity flow is to print more money themselves. But the problem with that is it will depreciate your currency further and it creates higher levels of debt and so is not sustainable over the long term. That’s the biggest risk.”
With this, Swan acknowledged his strategy may underperform in changeable market conditions given its momentum exposure.
“The analysts are very bottom-up and so we will be buying stocks with a fair bit of momentum behind them. The job of the portfolio manager in the fund is to always try to navigate the turns in the cycle because the analysts are not always as quick to spot these,” he said.
“There is a risk that if we miss something on the macro front then we can have a period of underperformance because a change of leadership in the market may mean we are positioned in the wrong way.
“That happened in April 2014 and in January 2016, when we were maybe too early or missed something and we had a drawdown in the performance of the fund. But we got that back really quickly soon after.”
Of course, Swan and his team are very aware of any falls in performance but he stresses the importance of travelling constantly to meet companies and find new growth stories. With that, I let him get back on the road, doing what he does best.
