Investments  

Discretionary view: Bringing focus to the fore

In the past 10 years, I have witnessed major changes in our industry, but none more so than the shift away from private client portfolios that were dominated by equities – in particular individual UK companies – to multi-asset, multi-manager strategies tailored to a client’s specific requirements.

We would argue that our retail clients are now benefiting from a genuinely institutional investment service. However, the greater emphasis upon manager selection means that the wealth management industry has had to refine its fund selection and monitoring processes.

We need to have as great an understanding as possible of what strategies our external managers are employing and what this means for our client portfolios. Just as an equity analyst wouldn’t analyse more than 15-20 companies if he wants to be thorough, we believe the same applies to monitoring funds.

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Our total recommended fund list is 70 funds, including passives, ETFs and investment trusts. We believe that this is sufficient to allow flexibility and, most importantly, to allow us to make suitable decisions for our clients. This focused approach helps us to avoid unpredictability, our chief hate when it comes to external funds.

This cuts both ways: we don’t like it when a manager performs better than we expect, as well as when he surprisingly underperforms. If a fund is performing “too well”, then we are likely to trigger a review and look into whether the fund moves from a buy to a sell. Our job is to ensure there are no nasty surprises and that clients have confidence in our ability to manage performance.

In markets that have become increasingly polarised and volatile it is vital that there is a continual dialogue to ensure understanding of how a fund will perform and blend with the rest of your portfolio.

Many have tried to argue that fund selection is a science, but this misses the point in our view – when you are committing your clients’ assets to fund, you are trusting that manager, as he will have great flexibility to change strategy whenever he wants. We believe it is vital to get to know a manager well.

It always amazes me how much emphasis fund selectors put on past performance and quartile rankings. We can find some value in assessing past performance trends, as it allows us insight in to how a manager’s process has worked in certain conditions, but our central view is simple. We are trying to find the winners of tomorrow, not yesterday. In a forward-looking investment process, the knowledge you can glean from past performance is very limited.

We also like to seed new funds and invest with a couple of newly-created strategies each year. Why many of our peers’ processes prevent them from doing so until a certain level of assets is gathered shocks us. We do not believe in setting constraints that prohibits our clients from some of the best opportunities in the market-place and seeding new opportunities has added great value in the past.