The chief investment officer of FTSE 100-listed St James’s Place (SJP) has dismissed the prospect of the wealth manager choosing quantitative strategies as part of its fund selection process, describing the products as too expensive.
Chris Ralph said he was not “closed-minded” about the opportunity presented by such offerings, which have been cast as a replacement for conventional active managers, but said discussions with some providers had not yet yielded enough focus on cost.
He said: “An awful lot of [quantitative strategies] are not priced at a significant discount; they’re priced at a premium.”
The comments came after BlackRock announced an overhaul to its core active equity strategies managed in the US. The firm said in March it would shift about a dozen funds to quantitative processes, affecting $30bn (£24bn) of assets.
Key to the change, which resulted in some fund manager redundancies, was the claim the move to more automated strategies would help lower charges on the products. BlackRock’s logic was that cheaper, quant-based funds stood a better chance at competing with passive strategies. This would, in turn, help alleviate pressure on revenue for active fund groups.
However, Mr Ralph said SJP – which negotiates its own fee levels with fund groups when selecting managers for its mandates – said fees had not fallen sufficiently to justify a move away from conventional active management.
He said: “Added capacity [in the UK market] will help competition and price discovery.”
The CIO did acknowledge that SJP was spending more time considering the merits of quantitative-based strategies than it had done previously, but said the firm’s investment committee remained unsure over the longer term benefits.
Mr Ralph said: “We are not closed-minded, but just need to see more evidence. If we can uncover sufficient evidence a quantitative-based strategy has a higher probability of excess return, we would consider it.
“The resources being dedicated to developing these strategies are substantial; some will not realise outperformance and some will. We need to align ourselves to the latter, but that’s a difficult thing to do.”
A further example of fund managers relying more heavily on automated investment styles came earlier this month with the news that Sanlam was shifting its Managed Risk fund to a process driven by AI and “machine learning”.
Mr Ralph said the SJP committee was focused on completing mandate changes announced last year, including dropping Aberdeen’s Hugh Young and Stewart Investors’ Jonathan Asante in favour of First State’s Martin Lau and Glen Finegan at Henderson.
Mr Asante, who has stepped back from managing money at Stewart, was removed from SJP’s Worldwide Opportunities fund in favour of Artisan Partners and replaced on the Global Emerging Markets product by former colleague Mr Finegan.
Other changes saw the wealth manager’s High Octane fund restructured as a global small-cap offering, with management shifting from Oldfield Partners to US-based Paradice Investment Management. SJP also brought in US firm Oaktree and Danish manager Capital Four to replace Babson Capital Management on the International Corporate Bond fund.