Two of the big hitters in UK asset management talked to this news service about approaches to investment, risk, and gave their understanding of what clients look for.
This news service has been talking to fund managers about their strategies and approaches for appealing to high net worth end-clients. After such a year as 2020, there is even more focus on the need to demonstrate capital preservation and the ability to produce income, although other considerations come up.
We spoke to M&G and Legal and General Investment Management, two prominent UK fund management houses. We continue to seek perspectives; to contact the editorial team, email firstname.lastname@example.org and email@example.com
Tristan Hanson, who is a multi-asset fund manager, runs the Global Target Return strategy at M&G, which had £72.27 million ($96.54 million) of assets under management, according to data from 31 October. He has been at the multi-asset team for about five years. Hanson has worked at Ashburton and started his career at Cazenove.
WealthBriefing spoke to Hanson a few days after the news that Pfizer and BioNTech had developed a COVID-19 vaccine, a move that sent markets soaring. That episode should remind investors about the dangers of staying on the sidelines, he said. “This is a good example of how it can be costly to avoid event risk in your portfolios.”
“It is a human tendency to want to protect ourselves,” he continued, noting that in some ways risk aversion has been the dominant mentality since the failure of Lehman Brothers in 2008. “People have been waiting for the next crisis around the corner.”
Hanson’s approach to the portfolio is “very top-down”. It involves looking at elements such as trends in inflation/interest rates; company earnings, and valuations.
Asked about the macro-economic picture, Hanson said central bank policy, such as of the US Federal Reserve, will remain very accommodative. Asked about the high level of public debt in the US and other countries, Hanson said the US level “does not give me a great cause for concern.”
“Equities offer pretty good value…they are not without risk but the equity risk premium remains quite wide. Equity looks more attractive than credit and fixed income,” he said.
The M&G fund was launched in December 2016 and its largest exposure is towards US government 30-year debt (6.2 per cent). Since 1 November 2019 through to end-October this year, the fund has clocked up a return of 2.2 per cent, against three-month sterling LIBOR+4 per cent of 4.5 per cent.
At LGIM, it talked to this news service about the approach of the entire business of wealth management, not just via a specific strategy. The firm has £1.2 trillion ($1.5 trillion) of assets under management, making it one of Europe’s biggest hitters in the space.
Steve Gray, who works with wealth management clients and who has been at LGIM for four years, said thematic investing is an important area for the firm. He talked about the importance of not conflating sectoral and thematic investing. “We like to adopt themes at their early stages,” he said, referring to examples such as cybersecurity. “We often look at small- and mid-caps and getting into areas early where firms have specific qualities.”
Thematic investing is about identifying global trends, such as rising affluence in Asia, ageing in the population, water shortages and cybersecurity threats, and then looking for companies which are likely to profit from how these themes play out. That is not the same as holding an “industrial” firm or a “consumer discretionary” one – to give two common sector types – because themes can spread across sectors. And thematic investing also cuts through national or regional segments – owning a firm just because it is listed in Paris or Singapore does not necessarily track smart asset allocation.
Gray reckons that the thematic approach has plenty of legs, but realises that it can take a lot of work to get clients on board. ““It can sometimes take many months to get a client ready to allocate to a portfolio,” he said.
Clients vary considerably in what they want. LGIM can discuss thematic investing with some, while others prefer a more traditional asset allocation approach. “You have to understand a wealth management client’s business and the issues that they face,” Gray said.
“We have to be very proactive…we are one of many other fund management groups out there and we have to fight for their time.”
“In the past nine months part of our job has been to be an `agony aunt’ to some of our clients. Having the scale and size that we do, with the resource, is fantastic….many clients like that,” he said.
“A lot of clients need income and that [income] has been a big issue. To get income we are looking at emerging market debt and high yield. That [need for yield] has been an area of pain for a lot of clients,” Gray added.