Every month, we challenge a seasoned fund or investment manager with our engaging series, I’m a Fund Manager. Our aim is to uncover the strategies they employ to manage their personal finances effectively.

We’re keen to learn where they see potential for investment both in the short term—over the next year—and the long term—spanning the next decade. Additionally, we explore their insights into avoiding common investment pitfalls, quizzing them about hot topics like Nvidia, gold, and bitcoin. Of course, no conversation is complete without delving into their biggest investing blunder.

This month, we had the privilege of speaking with Craig Baker. He serves as the chair of the Alliance Witan Investment Committee and holds the position of global chief investment strategist at Willis Towers Watson.

Alliance Witan is an investment trust that aspires to outpace inflation over time through a blend of capital growth and increasing dividends. To meet this objective, the company strategically invests in global equities, spanning a diverse array of sectors and industries.

Among its portfolio, Microsoft stands as its largest investment. The trust also holds substantial shares in prominent companies such as Amazon, Visa, and Mastercard.

Craig Baker, chair of the Alliance Witan Investment Committee and global chief investment strategist at Willis Towers Watson

Its largest holding is in Microsoft. It also has sizeable holdings in Amazon, Visa and Mastercard.

It currently trades at a 5.28 per cent discount to its net asset value and pays a dividend yield of 2.09 per cent.

Over the past five years it has delivered a total return (capital growth and income) of 58 per cent and 221.9 per cent over 10 years.

If you could invest in only one company for the next 10 years, what would it be?

If pushed to only consider one, maybe Microsoft. 

Microsoft is a large, high-quality company which has shown remarkable resilience over the last 40 years or more. 

After first coming to prominence in the 1980s, it has grown into the world’s largest software company and a formidable force in personal computing. 

It’s rare to find a company remaining so dominant in its sector decade after decade. 

Fierce competition means there’s no guarantee it will thrive in the future, but Microsoft is deeply embedded in the world’s IT ecosystem and is in a strong position to capture ongoing spending on cloud and Gen AI infrastructure.

What about for the next 12 months? 

We don’t buy stocks on a 12-month view, preferring to think long term, but there are plenty of companies with great businesses that have depressed share prices as a result of short-term market dynamics. 

One example is UK drinks giant Diageo seems at odds with the businesses’ intrinsic value. 

That said, as mentioned above we know many of our ideas will not work out, we just need a high proportion to do so.

Which sector most excites you?

We tend not to have aggressive top-down sector positions in either direction, focusing instead on the merits of individual stocks from the bottom up. 

Having said that, several of our managers are well positioned for a recovery in health care stocks, many of which have taken quite a relative hit in recent years.

10-year bet: Craig Baker says it’s rare to find a company remaining so dominant in its sector decade after decade

What sector would you be avoiding and why?

We don’t consciously avoid any sector, but we do have some concerns about the high valuations of certain AI-related stocks. 

Even though we are believers in the potential of AI to deliver economy-wide productivity gains and attractive profits for some companies, the share prices of many unproven companies

seem to have got ahead of their business fundamentals.

Which country currently offers the best value for investors

Japan, from several perspectives – corporate reforms, which are boosting profitability and shareholder returns, together with an improving macroeconomic profile as it escapes from deflation, and a weaker yen which enhances repatriated profits to the UK. 

Short-term value play: Baker thinks Diageo is an an example of a great business that currently has a depressed share price

Are we in an AI bubble?

It is difficult to say but there are certainly companies whose share prices will have risen well beyond a sensible valuation and there are many stocks outside of the technology sector that have been disproportionately hit due to the perceived threat of AI.

You need to differentiate between AI-exposed companies with strong fundamentals, like some of the Magnificent Seven who are highly profitable, and the raft of nascent businesses benefitting from investor enthusiasm for the AI theme. 

There may well be a bubble in the share prices of the latter, some of them don’t even have revenue let alone profits, and the valuations of some of the former are also starting to look a bit stretched. 

But even if there’s enough evidence to worry about being in a bubble, there’s not enough to suggest it’s about to burst.

Guessing the timing is also a dangerous game – as John Maynard Keynes once said, ‘the market can remain irrational longer than you can remain solvent’.

Cheap: Baker thinks Japan’s corporate reforms, its improving macroeconomic profile and weaker yen makes it look like a good value market at the moment

Should investors be looking to rebalance their portfolios away from the US?

Despite high valuations, the US still provides huge opportunity, but it’s always good to diversify across countries, particularly after a long period of sustained outperformance and the US becoming such a large part of the index.

Do you think investors should be wary of passive investing?

Passive investing is always a sensible option, but, given the extraordinary performance of the mega cap stocks that dominate indices over the last decade or so, now may be a more risky time than usual to hold such a portfolio. 

Active management results relative to passive management comes in long cycles of underperformance followed by long periods of outperformance. 

History would imply we might be about to shift from the former to the latter.

On the fence: Baker thinks there is not enough evidence to suggest the ‘AI bubble’ is about to burst

Why should investors choose your fund over say a passive index fund?

We believe we can outperform a passive index fund over the long term. If large cap equity index funds generally return around 8 per cent per annum over the long term, then if we can add 1-2 per cent per annum more value on top of that, it can have a huge impact on long-term savings. 

The fact that the passive index has returned more than double the expected 8 per cent per annum in the last three years doesn’t mean people should now buy the index because they think it will always deliver those sorts of returns or always be the best option. 

It is also worth noting that we are less concentrated than the index and therefore offer investors lower risk than the index.

Should gold form part of everyone’s portfolio?

It’s not usually the best time to add something new to your portfolio after its price has risen so strongly. That said, gold does provide genuine diversification from equities.

Do you personally invest at all in crypto?

No, but I have been tempted by bitcoin after the recent fall, now that it’s been made available to UK retail investors in ETF format for the first time.

Flying high: Gold has risen more than 50% since the start of the year

What’s your greatest ever investment?

Alphabet.

And what’s your greatest ever investing mistake?

Not owning Nvidia overweight all the way through its stock market ascent.

Is the property market ‘safe as houses’ or due a crash?

Since the financial crisis and a prolonged period of near zero interest rates, essentially all assets have risen materially in value, be it stocks, bonds, property, gold or commodities. 

We can debate which ones are more or less attractive, but the concept that anything is ‘safe’ as a permanent description is a dangerous belief.

Which company would you advise an income seeking investor to put £100,000 in?

I wouldn’t advise putting a large sum of money in a single company stock, it’s too risky. 

It’s much better to spread the money across a range of companies in an investment trust or a fund.