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The £56m Way Global Red Portfolio fund does not have the eye-catching three-year track record that is so crucial to retail sales. It fell 2.9 per cent on a cumulative basis over the period to 6 October, compared with losses of 0.6 per cent for the IMA Active Managed sector on average, according to Morningstar.

Paul Kim, who has managed the fund since 2002, puts this down to a rocky patch he and his colleagues hit in 2006 after several years of outperformance. “We got caught being a bit overweight in Japan – smaller companies in particular. That hurt, and we were in the fourth quartile for that year,” he recalls.

The team also struggled to add value in 2007, mis-timing the downturn. “We went too cautious, too early. We started to raise cash throughout the year, and we held more defensive funds. With hindsight we ought to have stayed in more aggressive areas and built up our commodities holding.”

Yet the caution paid off this year. The one-year track record places the fund in the second quartile, and over three months the fund looks better still relative to its peers.

This is partly due to a high cash holding. Mr Kim is allowed, under the terms of the fund prospectus, to invest only 10 per cent of the fund in cash. But, as a proxy, he holds two vehicles that he calls “absolute return”, JPM Income Opportunity and Premier Absolute Growth. “The JPM fund is basically a cash equivalent, and Premier Absolute Growth is an old zeroes fund that has expanded its remit because the zeroes market has shrunk drastically,” he says.

But now Mr Kim is reducing his cash or cash-like holdings and slowly buying back into the collapsing markets – “fishing for somewhere near the bottom”, as he puts it. He has recently topped up his holdings of Artemis Income, Odey Continental European, Skandia Specialist American and SG Japan Core Alpha – covering all the developed world stock markets.

Despite these increases, however, Mr Kim remains underweight in the mature economies relative to the IMA Active Managed sector average, which he uses as a benchmark. “The West has to pay for the last 10-15 years of easy money. There has been no saving and everything predicated on house prices going up forever. Now unemployment is creeping up. Things are going to be fairly tough for a while yet,” he predicts.

The exception to this rule is Japan, which the credit glut more or less passed by. Mr Kim’s most aggressive overweight position, at 7 per cent compared with 5 per cent for the benchmark, is therefore in Japanese equity.

Unfortunately, the Topix index has been subject to the same vicious sell off in recent weeks as the S&P 500. The manager puts this down to margin calls forcing investors to raise cash. “People have been looking for something to sell that hadn’t gone down as much and that they could sell relatively easily. Japan had been holding up fairly well until the last collapse,” he explains.

But despite the recent plunges, Mr Kim will continue to reinvest his cash holding. “Taking the long-term view” is an expression he often uses. “Trying to call the bottom is like catching falling knives. It’s very, very difficult. No one has a crystal ball,” he says.

The long-term view also informs his slight overweight positions in emerging market and Pacific Rim equities. “We’re fairly optimistic that they’re the areas that will recover first. They are net savers, and the banks are in a good position after the Asia Crisis. They will come through more quickly and probably jump further,” he observes.

Ultimately, however, Mr Kim subscribes to the fund selection school of multi-management, rather than the asset allocation school. He and his team at FundQuest, to which Way Fund Managers outsource management of the portfolio, spend their time meeting and assessing managers. FundQuest is the multi-management arm of BNP Paribas Asset Management, with roughly 25 investment professionals.

Each analyst is responsible for covering a specific region. At first they use quantitative screens to sift through the universe of managers. Once they have found one with an attractive record, they meet the person to “get behind the marketing.”

“We look at how and why they have achieved the numbers. We look at the philosophy over the long term, and also the corporate background – the house style, the analyst resources. We want to understand exactly how the manager runs their portfolio, so we can integrate them into our portfolio,” he explains.

As a rule, the manager tries to achieve a balance of styles, capitalisations and research approaches. Likewise, the fund of funds is less concentrated than many of its peers in the IMA managed sectors, with 27 fund holdings.

But Mr Kim does “tilt” the fund towards one style or another, depending on markets. He attributes most of the portfolio turnover, which was 30 per cent last year, to small increases or reductions in existing fund holdings, rather than rapid hiring and firing of managers. Right now the portfolio has a bias towards large caps, as these offer greater protection from the vagaries of the stock market. Mr Kim holds no small-cap funds and says he has allowed the all-cap managers to migrate up the cap scale as conditions have worsened.