Ned Naylor-Leylan from Jupiter AM – Fund Manager of the Month

Ned Naylor-Leyland is a Fund Manager and Head of Strategy in the Gold & Silver team at Jupiter AM. Before joining Jupiter, Ned worked at Merian Global Investors as a portfolio manager in the Gold & Silver Team. Prior to this, he worked at Quilter Cheviot where he founded a dedicated monetary metals fund in 2009. He began his investment career at Smith & Williamson in 2001. Ned has a BA in Spanish.

1.When and how did you start your career in the financial industry? Did you have any other vocation?

I wanted to be an architect when I was at school, but I began my career in the City at the start of the 2000s in the private client wealth management world. Managing the assets of individuals made me interested in systemic, or structural, risk. Maybe there is a read-across there to the concerns of an architect!  

2. What’s your biggest challenge as a portfolio manager?

The biggest challenges for a portfolio manager to my mind are fighting impatience and correct position sizing. Alpha comes from human insight in my view, but timing that insight is always tricky.  As such, ‘find the trend whose premise is false and bet against it’ (a famous Soros quote); but understand that your timing may not always be right, so you may need to size your position accordingly. Sometimes taking an initial position and then buying more lower can be your most important skill as a portfolio manager.

3. What sustains your drive within the industry?

The desire to understand and learn more about my asset class and markets generally sustains my drive on a daily basis.

4. What has been the most extraordinary thing you have seen in markets?

The most extraordinary thing I have seen in markets, and continue to see, is the lack of vigilantism in the modern bond market. The bond market’s pricing of US$1 in 7-10 years’ time, held in AAA bonds and net of rates and inflation expectations, is that it will still be worth 99 cents in real terms. I find this quite incredible and it remains, on a size-adjusted basis, the most mispriced observation I have seen in my career.

5. What key principles drive your investment processes and why?

The key principles that lie behind our investment process are somewhat contrarian: be peer-group agnostic and narrow your investable universe. Modern fund management is generally the opposite of this, i.e. very benchmark and peer-group sensitive and is about having as many investment options as possible. Gold and silver miners are a form of call option on monetary distress and each one carries material operating risk. For that reason, one of our central principles is to narrow in on around 100 stocks, understand them deeply and maintain upside optionality by using silver, while monitoring the risk variables through integrated financial and operational modelling on our narrowed universe.

6. How do you believe inflation will affect the performance of your portfolio?

Inflation is one half of real interest rates, which are the primary driver of both gold and silver. As such, higher inflation is likely to be good for our sector. In addition, it is worth mentioning that beyond this reality there is also the important component of investor perception. Gold and even more so silver are perceived by investors to be direct hedges against inflation and so I anticipate that inflation could be crucial to driving a much higher level of overall participation in the asset class. When investors see inflation they seek out real assets, and in the world of real assets gold and silver sit at the apex as sound money.

7. How would you describe the composition of your portfolio? What type of companies do you believe are the best to invest when working with commodities like Gold and Silver?

Our portfolio composition would best be described as ‘a blend of gold and silver bullion trusts and gold and silver mining equities that operate in the Americas and Australia’. Within the mining equity subset, we like the mid caps and scalable development assets as they carry the potential for M&A premiums in a hotter market and can grow their in-the-ground resources rather than consistently depleting them.

8. Would you give any advice for anyone wanting to start a career in the asset management industry?

My advice to people starting in the world of investment would be to identify an area that they find genuinely interesting and then maintain an unbending intent and determination to get into that area; and always keep reading and learning!

Please note: Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested.

The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given.