An interview with Peter Fitzgerald

PF: The traditional process of saving for retirement has involved putting aside a proportion of your money every month in the hope of meeting an end goal of a certain amount of money once you reach retirement. What is attached to that simple process, however, is an increasing amount of complexity. It could start with speaking to an adviser, going to a range of different fund managers, attempting to build a balanced portfolio and working out when to move in and out of different funds. The whole process becomes fiendishly complicated.

At Aviva Investors, we have come up with an outcomes-based solution, focused entirely on what the client wants to get out of their investment. We have narrowed that down to three areas. First, people want to save for retirement, growing their money steadily over time. Second, once they have done that they want to draw an income in retirement. Finally, some are specifically worried about inflation. In very simple terms, we are cutting through the complexity, finding out what the client needs and then organising all of our resources on our side with the aim of delivering the principal client outcome.

How do advisers fit in with this proposition?

PF: Historically, advising on saving for retirement has been quite a tricky path for advisers to navigate. Firstly, they have to deal with advising their clients on the best options to suit their individual circumstances but, also, on the other side of that they have had to face quite a complex fund management industry. In the past, an adviser would have to consider things like how much to put in the stock market, whether to go with an ETF or, if they chose to go active, which fund to go for and when they should switch out. Secondly, they had to take a view on the wider economy, balancing exposure to different asset classes to deal with different market conditions.

Clearly, that complexity is an issue in itself, but then, on top of that, regulation has become an additional factor. The regulator, particularly after the retail distribution review, has said that if you are not able to handle the complexity, you should not be involved in that part of the process. What we are offering advisers with our outcomes-based solution is to allow them to focus on their clients and the broader issues surrounding financial planning. Finally, once they have identified what it is that their client is most concerned with, they can choose the best product and we can handle the rest of it for them. They do not have to worry about keeping abreast of the latest news on the markets and deciding whether to move money in or out of various asset classes if they do not want to do this. Equally, they do not have to worry about justifying those moves to the regulator. They can simply say that they have understood their clients completely and have put them in a fund that meets their particular outcome requirements.

Advisers and their clients will obviously be keen to get a sense of what is going on within each fund and the strategies and processes being employed. How do you ensure effective communication?

PF: We pride ourselves on having lots of openness on the funds and we are happy to talk through what we are doing at any level of depth people would like. At the heart of the proposition, we have a simple investment process and the way we go through it is with common sense applied rigorously. The whole thing about investing for retirement is it can be quite a complex process and, often, what happens is people make rules of thumb to help them navigate it. For instance, one rule of thumb is that, if you are saving for retirement, the best thing to do is put your money in the stock market and, from that, go as cheap as possible, perhaps with something like an ETF. However, if you have done that over the past 10 years or so, you may not have made much money at all and the reason behind that is the rule is flawed and markets do not always go up all the time. The outcome you want is quite simple: grow my money. However, going into a simple product is not the answer. We would argue that our approach is more effective because it deals with the simple outcome the client wants.

The broader message we want to put across to advisers and their clients is that there is always going to be complexity in this area, but by choosing to invest with us, we can help remove some of that complexity. Our aim is to deliver the outcomes you need.

The Aviva Investors Multi-Strategy Target Return fund has already been launched, with a further fund to follow. What similarities will there be across the two in terms of portfolio construction and management?

PF: Both will be part of the same family and will have a similar construction because of that. They are all multi-strategy, which means we have ideas that come up from our broad team of investment professionals and they get filtered through our strategic investment group and put together in different ways for different outcomes. Each portfolio is structured around three main areas: market returns, opportunistic returns and risk-reducing returns.

By combining those three areas it helps us grow the money over time and to do that irrespective of what is going on in the market. We have a very well-resourced strategy team here and, because of our size, we benefit from being able to talk to every investment bank out there. We draw all these inputs together, plus more from across our globally based investment teams, but we are happy to admit that we still make mistakes. What we are looking to do here is build portfolios that will deliver even if our main view proves to be incorrect.

How exactly does it work?

PF: The market return component takes into consideration our house view on the wider economy and where we are in the business cycle. From that, we look at what we would normally hold in those conditions, making adjustments based on the valuation of those assets and whether they look cheap or expensive. It quite simply looks at where we are at the moment, where we think we are heading on a two to three year view and what we have tended to do in the past.

Second, we look at opportunistic returns, taking on ideas from any investment professional from across the company. Ideas will be formulated and discussed across teams before going through the strategic investment group to be signed off. The key here is those ideas are not beholden to the house view. Indeed, they will make money regardless of whether the house view is correct or not. Most often they take advantage of the opportunity created by the herd mentality in the City and the way in which short-term panic disrupts markets. In those instances, you do not need the economy to grow to make money, you simply need markets to go back to being more normal.

The final part, risk-reducing returns is a more sophisticated way of implementing the strategy of taking a portfolio and hedging for the so-called “swan” events. The issue with that approach is every time you pay for the hedge, you are paying an insurance premium which, if markets tend to go up more often than they go down over time, means you end up paying away some of the returns. Instead, we have said, let’s ignore benchmarks completely and think of clever ways to protect the portfolio at the times when our house view is incorrect. They are positions which, in a normal environment would give a positive return or, at worst, a zero return, but which will not cost you anything. For example, we are long large caps and short small caps, positions which, over time, tend to move together and do not do much. However, in a negative environment, smaller companies fall more and so, while you lose some on the large caps, you make much more being short small caps. It is basically a clever way of offsetting the house view.

To find out more go to avivainvestors.co.uk/AIMS/adviser, call 0800 015 4773 † or email fundandsalessupport@avivainvestors.com

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For investment professionals only. This is not to be viewed by or used with retail clients.

The value of an investment can go down as well as up. Investors may not get back the original amount invested. The return and volatility objectives are targets only and there is no guarantee that they will be achieved. In order to fulfil the fund’s objectives the manager invests principally in derivatives contracts. Please refer to the fund objectives and investment policy contained in the Key Investor Information Document and the Prospectus.

Issued by Aviva Investors UK Fund Services Limited, the Authorised Fund Manager. Registered in England No. 1973412. Authorised and regulated by the Financial Conduct Authority. Firm Reference No. 119310. Registered address: No. 1 Poultry, London EC2R 8EJ. An Aviva company. www.avivainvestors.co.uk CI063105 09/2014