“Typically, if a client’s time horizon is under three years we do not invest for them. It is difficult for us to put them into an equity-type portfolio.”
That is not to say, of course, each portfolio is identical. Each manager has discretion over the exact makeup of a portfolio but is bound by the overarching strategic asset allocation positions for each risk band.
It is a relatively simple process, according to Steel, but he is quick to point out that the firm is acutely aware that clients are wanting to make a return, as well as wanting their risks mitigated.
“It is not just about controlling risk, it is about making sure clients are aware of the risks they will have to take to get the returns they are looking for. There is no point having a client saying I want 12% pa return and, in the next breath saying I am only prepared to endure 4% volatility.”
In terms of current allocations, Langrish says, John Hambro’s balanced portfolio, which accounts for around 40% of client assets, has a significant underweight to fixed income; it currently accounts for 20% of the portfolio, against a strategic allocation of 25%.
Within this, there is no exposure to conventional gilts but the firm does hold some indexlinked gilts.
“We do think inflation will pick up, so it is prudent to have a bit of an inflation hedge,” he says.
Aggressive behaviour
The other big recent move is that it has taken down its exposure to strategic bond funds quite aggressively.
“We hadn’t touched them for quite a few months but we are a little concerned there might be a bit of a liquidity crunch. So the funds we do have are the large, liquid, daily trading,” says Langrish.
Indeed, liquidity is a major focus throughout the portfolio.
“We can liquidate around 95% of the portfolio within 10 working days. Having access to liquidity is crucial at the moment.”
On the equities side, the portfolio is exactly neutral in terms of overall allocation at 55%. But this is because the firm recently took some money off the table in equities to bring it back from a long-standing overweight.
“The move was more about prudence and caution, than a view that there is any sort of tipping point in the market,” he says. “We just think there are a few uncertainties out there that make it prudent to take a little cash off the table.”
At a regional level, the firm remains bullish on both Japan and Europe, with strong overweights to both regions. In the UK, it is slightly overweight following the election, after having been underweight ahead of it.
Langrish says the company has virtually no exposure to emerging markets, although it does have some exposure to Asia.
Alternatives make up around 17% of the portfolio, principally in property and infrastructure, while cash levels are at 7.5%.
“It is all about taking a long-term view,” Steel says. “We tend to avoid knee-jerk reactions, in part because we do not think clients appreciate seeing something in their portfolio one day and not the next, especially if we are telling them this is a long-term game.”
