It is hardly surprising when yet another asset manager declares they are building on their existing multi-asset offering, or are indeed entering this space for the first time in light of the recent pension reforms.
But it is hard to accuse Investec Asset Management’s multi-asset team, led by John Stopford and Philip Saunders, of simply following the crowd, given they have been running multi-asset products for considerably more than a decade.
David Aird, managing director of Investec’s UK client group, points out: “When we’re engaging with clients, whether they be in the adviser or institutional space – or where those two worlds are colliding, which is in the DC [defined contribution pensions] and workplace-savings world – quite often if we’re breaking new ground with clients who don’t know us very well or are new prospects, they say, ‘you’re jumping on the multi-asset bandwagon’.
“It brings a smile to our faces because in fact Philip and John and their colleagues have been running multi-asset solutions for our clients for more than 15 years.
“For us, it’s slightly galling to be accused of jumping on the bandwagon because these guys have been doing it really well for a long time.”
Both Mr Stopford and Mr Saunders were at Guinness Flight when it was bought by Investec in 1998. Having both started on the fixed income side, Mr Saunders moved across to running multi-asset funds in 2000 as he foresaw the shift to outcome-oriented investing.
He recalls: “We’ve effectively been running multi-asset portfolios and benchmark-relative portfolios on a global basis for many years, going back to the 1980s.”
The manager remembers when multi-asset funds went out of favour at the end of the 1990s “when very high equity-oriented balanced funds failed their investors simply because… people pursued performance by adding more and more equity exposure into the mix. Then you had 50 per cent drawdown and investors suddenly realised the level of risk they’d assumed in order to get these returns”.
Mr Saunders explains how Investec’s current multi-asset team came about: “John and I worked in the global fixed income team together for a number of years and then he stayed on the fixed income side and was involved in developing a very successful emerging market debt (EMD) business. He worked in South Africa for a period and we had to bring him back from balmy Cape Town.
“Almost four years ago we decided we wanted to significantly expand the multi-asset team, and so we restructured our global fixed income team, spun out the EMD side and then John and Russell Silberston joined me in the multi-asset team.
“We took the view that although we subcontracted [our] exposures to fixed income and EMD to John’s team, and we had a common investment philosophy, we felt we needed to operate in a much more integrated basis in order to run these portfolios in a best practice way.”
Three years ago Michael Spinks joined from Schroders as co-head of multi-asset alongside Mr Stopford and Mr Saunders. The team now comprises 31 people and runs roughly £7bn of the total £72bn of assets under management at Investec.
Mr Aird says: “In the coming year or so we hope to take the Diversified Growth fund – which is now £1.2bn – directly into the adviser channel where clearly we’re going to be up against the likes of Gars, Troy, Ruffer, Aviva and Invesco. That is our main hunting ground.”
The duo believes best practice multi-asset investing is not simply a top-down exercise, but that they can generate returns and control risk in a “less heroic way”. They label the underlying investments in their portfolios as growth, defensive and uncorrelated assets.
Mr Saunders admits high-quality, uncorrelated assets are “relatively scarce, but it’s just a simple, common sense way of thinking about structural diversification within portfolios”.
| CV- John Stopford |
2004 – present - Co-head of fixed income and currency, then co-head of multi-asset, Investec Asset Management 1998 – 2004 - Responsible for South African fixed income assets, Investec 1993 – 1998 - Emerging bond and currency markets investor, Guinness Flight 1991 – 1993 - Global bond and currency portfolio manager, Mitsui Trust Asset Management |
He explains: “Ultimately you’d like to think you’re a bit of a genius and you can time markets, but in reality sometimes you can’t and that means you shouldn’t rely on dynamic asset allocation to manage risk in portfolios. You should build that structural defensiveness into funds right the way through.
“We recently added an exposure to high-yield bonds, having had none in this portfolio for a number of years. It’s an asset class that’s been in a bear market.
“It’s been repricing and we know we’re in an environment where the default cycle is rising and we are making the judgment that the compensation is reasonable given a deteriorating default environment. But in order to manage that risk we’re being highly selective about the individual credits we own.”
The other fund being pushed by the multi-asset team is its £101m Diversified Income vehicle managed by Mr Stopford. The launch, just over three years ago, was directly in response to the changing requirements of retirees and as a replacement for fixed income.
He explains: “We began to recognise that there’s probably a growing demand for income-orientated strategies, simply because populations are ageing. The demographics are shifting and so the people with the assets are increasingly getting older. As you get older you typically move away from looking to generate capital returns as you need your savings to generate an income.”
The fund aims to deliver a sustainable yield of between 4 and 6 per cent, but there is also the need to protect capital.
Mr Stopford says: “There’s a trade-off – we need to take some risk to generate the yield to generate the return. But at the same time, because generally a lot of investors who we think are income-orientated haven’t got the time to rebuild their savings if they have a big drawdown, they want to know the savings they’ve got are going to be there to generate the yield.
“They are quite sensitive to capital losses, probably more so than in the Diversified Growth fund space where you’ve got more time to make up any shortfall.”
He summarises: “Every single investment, whether we’re looking at things in aggregate or looking at individual securities, we will ask, is it cheap? Is it supported by the economic environment? And are investors likely to accumulate it?
“If we can answer positively to all of those, that’s something we’re going to like quite a lot and want to have in the portfolio. If we answer negatively, then that’s something we’re going to want to avoid or potentially go short.”
How are the portfolios positioned for the possibility that the UK may vote to leave the European Union on June 23?
Mr Stopford explains: “Whereas the normal position would be to hedge quite a lot of the risk back to sterling, we’re hedging less back in the current environment. The Diversified Income [fund] has 23 per cent of its currency exposure outside of the UK, in things like the dollar, the yen, the euro to some extent, the Canadian dollar [and] the Australian dollar.”
In the search for income investors have found themselves crowded into just two areas, Mr Stopford says. “We think investors may be questioning whether they have too much exposure to lower-rated credit. Equity income is a very attractive asset class and a place to look for income, but it clearly comes with quite a lot more volatility.”
| CV - Philip Saunders |
2004 – present - Co-head of multi-asset, Investec Asset Management 2000 – 2004 - Multi-asset manager, Investec Asset Management 1987 – 2000 - Founding director, Guinness Flight Global Asset Management (acquired by Investec in 1998) 1984 – 1987 - Responsible for managed currency funds, Guinness Mahon & Co 1981 – 1984 - Analyst, Guinness Mahon & Co |
While the Diversified Income fund has already seen some take-up among wealth managers, Mr Aird believes there is a way to go before it gains broader adviser appeal.
“I think the wider adviser world will take a little time through education and engagement to feel more comfortable with what a multi-asset income fund will do, so we’re seeing more traction at the moment in the wealth management channel as a bond replacement,” he says.
“Now [George] Osborne has given us potentially even more assets to look at, I think that part is an incredibly exciting area for us to go and win more business.”
