Firing line  

‘A lot of active managers have funds that are passive’

‘A lot of active managers have funds that are passive’

Active fund managers are not taking enough risk to get results, and this is where small fund management companies have a better chance of delivering materially better outcomes for clients, says David Thomas.

The chief executive of Seneca Investment Managers explains that as smaller funds are often more nimble, they can invest in areas that, for reasons of size, liquidity and difficulty of dealing, are not open to their larger peers.

“While small size is often viewed as a disadvantage in the fund management industry, on the contrary, small is beautiful,” he adds.

Indeed, Mr Thomas should know what he is talking about when it comes to beauty, as an avid Asian art collector and history lover.

From 2002 to 2004, Mr Thomas took a break from the investment industry to manage projects to do with commercialisation of various laser techniques associated with sculpture at the National Museums Liverpool.

And from November 2009 to 2016, he held the role of director and proprietor of Alexander Merchant Art Ltd, after he was introduced by a colleague at Midas Capital, the predecessor company of Seneca Investment Managers.

He explains: “[I was] getting out of my system the wish I’d always had about staying on at university to do a doctorate.

“I didn’t come out of the womb reading the Financial Times as many people in the industry do, it’s something that grew on me.”

Investment approach

In 2018, the Liverpool-based fund management company averaged net inflows of £1m a week and increased its assets under management by 70 per cent to £500m. All of its money is managed on a multi-asset basis, and this will remain the case for the time being, says Mr Thomas.

Looking forward, he confirms the company has been preparing funds for market weakness and a possible recession in 2020 by reducing exposure to equities, with the principal focus to sustain its investment performance and growth.

“We completely sold out of our US equities about 18 months ago,” he says.

However, he is wary of the “tainting of all active management with the same brush” when the industry “should be distinguishing between good and bad active management”.

He says the industry is “trying to reduce risk to a single number”, which has scared  “a lot of active managers into not taking enough risk to get materially better results”.

He explains: “A lot of the investment models that are driven by these sorts of numbers are quite backward looking, they are stochastic models based on what has already happened.

“If you look at investors who are at the low end of the risk scores, more often than not they will have funds or portfolios which contain a relatively high proportion of gilts.”

He adds: “While gilts traditionally have been very safe, and in the very long term that is undoubtedly true, how on earth can it be consistent with an investor to put them in an asset that’s got something like a 30-year high in valuations?”