Whether grocery shoppers opt for Tesco or the farmers’ market is much the same as choosing between a large institution and a boutique service to manage wealth, according to Kieran Follis.
His firm, Magellan Research and Investment, recently launched under the P1 umbrella and Asset Allocator thought it’d be interesting to find out how asset allocation decisions can differ when heading a start-up boutique instead of a corporate behemoth.
“We fish in different pools from the large DFMs,” he said.
“If you're an investment manager who's got £70bn under management, you have to try and get half a billion into the market in Japan. You have to be able to buy a fund that can get a hundred million in, and a hundred million out again if you need to. Now, that leaves you with about four, five funds that are of that size that you can deal in.”
“Now it means that all the large houses with that much money are all buying the same thing. So you shouldn't expect any difference in performance as they are all clumped together.”
This, Follis says, gives him the ability to differentiate himself.
For Follis, who left Ravenscroft in 2022, running a boutique requires a more cut-throat approach to any yarns spun by fund managers.
“If the fund doesn't do what we want it to do, we won't use it,” he said. “And if it does do what we wanted to do, and we put it into one of our models, and then it starts to, for some reason, underperform, it doesn't matter how much I like the rep – it goes, or it gets cut back.”
“Things have to perform because when you're at a boutique, and you've got a limited number of clients, you can't really afford to lose one. You know, there is nowhere to hide. You have to make your funds perform, and we absolutely will.”
Where does Magellan cast its net?
Follis cited Polar Capital Global Insurance as a fund he has been particularly pleased with of late.
In fact, this is by some distance the most popular specialist fund in our database, held by five other allocators.
Its niche in insurance firms has benefited from the recent period of elevated interest rates, which tend to boost underlying bond yields and thus earnings. As a result, the fund has offered top-quartile returns over both three and five years.
Elsewhere, Follis says he typically allocates just 20-23 per cent to fixed income. On diversifiers, he said that Magellan is looking for absolute return-type situations.
“Bonds are not something that's ever turned me on for quite a while and you know, the room for people to get it wrong has just been immense.”
Indeed Asset Allocator has very recently covered the changing landscape of modern portfolio theory and whether DFMs still believe in its principles. You can read it on your lunch break, here.
