Multi-managerNov 30 2015

‘We construct portfolios that look different from our peers’

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When Schroders acquired Cazenove in July 2013, Marcus Brookes, Robin McDonald and Joe Le Jehan duly moved across with their multi-manager fund range. The Cazenove multi-manager funds were renamed as part of the overhaul, with four funds merged away, leaving them to manage seven multi-manager strategies in a very different environment.

“The Schroder range was very complementary to what we were doing and has very similar benchmarks, so we just merged them into the old Cazenove funds and then rebranded the Cazenove funds to Schroders,” says Mr Brookes.

“Cazenove was obviously a much smaller firm,” Mr McDonald points out. “It was principally pan-European equities, fixed income and multi-manager. The breadth of product, the breadth of expertise here at Schroders is a completely different ball game. There have been a lot of benefits to us joining in that respect, but in terms of the core of what we do, that hasn’t really changed.”

What the range and the team are trying to achieve is market-leading, risk-adjusted performance – a phrase Mr McDonald uses repeatedly. So, what does this mean in practice? They are “not necessarily shooting for the best nominal performance in every peer group with every fund” they run, he says, which means “preserving capital on the downside is incredibly important”.

The volatile behaviour of the markets in August provided a perfect test for the funds. Mr McDonald observes: “August was the first really tricky month equity markets have experienced for quite a period of time. So global equities were down somewhere between 5 and 10 per cent – quite a short, sharp sell-off in the market potentially catches a lot of people out.

“It’s in months like August that our process really ought to ensure we’re limiting the degree of downside exposure we give to clients.”

Sure enough, the funds did just that, he suggests, with the flagship Diversity fund down just 1 per cent, compared to the average in its peer group of minus three.

“We construct portfolios that look different from the majority of our peers and, as a result, the outcomes over time have been different,” he continues. “We can’t be right all the time. But what’s important is over time we meet that objective of good, solid, market-leading, risk-adjusted performance and over the course of the past five years we’ve pretty much managed to do that, which is quite gratifying.”

It is a tight-knit team, with Mr Brookes and Mr McDonald working together for 14 years now. “Too long,” jokes Mr Brookes.

Mr Le Jehan, who joined them at Cazenove in 2007, says: “We’re all generalists on the investment side. Basically, everything we do starts from the macroeconomic environment, so we all need to know what’s going on.”

Mr Brookes agrees: “I think that’s a really important strength of the team because if you are given a specialism and that’s the only thing you can look at every day, guess what you’re going to be bullish on? What we need to be able to do is take every investment theme, it doesn’t matter who generates it, and then evidence-test that against what is actually considered to be the truth within the market.”

At the moment, the team is utilising its ability to hold cash in the portfolios, which it does when other asset classes are not offering the return potential they would like.

Mr McDonald says: “I think it’s a consequence of this cycle, the environment we’ve been in – monetary policy, quantitative easing, all these sorts of things – that a lot of these conventionally defensive asset classes which historically have provided you with a low-risk reasonable return, today are some of the most overpriced in the marketplace.”

He notes how investors have been forced further out on the ‘risk curve’ in recent years as a result. “It’s why we, for the time being, have a preference for cash in lieu of a few asset classes but principally fixed income.”

Significantly, the team has dipped a toe back into emerging markets, having left the asset class a few years ago. Says Mr Brookes: “I can’t say it’s the highest conviction thing we’ve ever done but it’s the beginnings of something, actually.

“We know from our own history, if we have an idea, the worst thing we can do is put the first position in at 5-10 per cent straight away. So going at it small, building it up, even buying as it goes down so long as the investment thesis is still in place, gives us a bit more comfort.”

Many investors believe the global market volatility in evidence over the summer was in response to concerns over developing economies. As he explains the team’s thinking, Mr McDonald harks back to 2012, when he and his colleagues made a call to get out of emerging markets.

“We took the view a weak US dollar was not only quite evidently no longer good for the world – sending commodity prices higher, squeezing developed market growth – but that it appeared to be bottoming,” he says.

“Now, at the time, it was an indisputable trend that the dollar would be going down, and that emerging markets and commodities would continue to outperform developed markets and US equities.”

He continues: “Three-and-a-half years ago when we made that call, it was in part predicated on the fact a weak US dollar was no longer good for the world. Today, we’ve taken the same, albeit opposite view, which is that a strong US dollar is perhaps no longer good for the world because it’s squeezing those very same emerging markets that are now significant proportions of the global economy.”

Another change, this time within Schroders, is the addition of product specialist Joe Tennant this year. He admits it was a “real concern” of his, integrating into what he calls “such a tight and successful team”.

“I needn’t have worried,” he says. “Whilst my role was new to the team, they were very open-minded and, I think, quite interested to see what I could bring to the desk.

“There’s a strong mutual respect between all four of us, which is crucial, and I think this developed quite early on.”

Describing his role, he calls himself “the voice of the fund managers to our clients, and the voice of our clients to the fund managers”.

“From a business side, it is about listening to our distribution teams and clients, and understanding where the current and future demand lies, and how we need to shape our offering to provide for these needs,” he says.

The team is careful to differentiate itself from the multi-asset team at Schroders, although it too invests across asset classes. Multi-manager funds remain popular among advisers and investors, the managers assert.

Mr Tennant says: “They take the pressure off many advisers, who have an awful lot of different factors to consider when planning for their clients. It’s important to remember that there’s a lot more to being a financial adviser than simply putting together investment portfolios.”

Mr McDonald adds: “I think what has driven multi-manager is that investing has got a lot harder. It’s got harder for a number of reasons: one, because markets have become that much more complicated and secondly, the regulator, many times for very good reason, has indirectly made an adviser’s job a lot more complicated.”

The team seems happy to retain its current size, both in terms of the number of people and the number of funds.

Mr Le Jehan adds: “Ever since we’ve come to Schroders, we’ve been quite conscious of not suddenly agreeing to run 50 different portfolios.”

Mr McDonald agrees: “The great thing about this job is you don’t need a huge amount of change with your own product in order to keep it interesting – the market keeps it interesting.”

Timeline: Schroders’ multi-management team

October 2007

Robin McDonald joined Cazenove as a fund manager

January 2008

Marcus Brookes hired as head of multi-manager at Cazenove

March 2008

Joe Le Jehan appointed as an analyst, became fund manager in January 2013

July 2013

The multi-manager team moved to Schroders following its acquisition of Cazenove

March 2014

The team hired Joe Tennant as a product specialist