Based in an office below a swanky private members club for London’s city workers yet a short walk away from trendy Shoreditch, it is fitting that Arjent’s offering is wide in scope for a variety of different clients.
Formed in 2001, initially as an advisory dealer and stockbroker specialising in US stocks and alternative investment assets, a post-2008 directional change saw it granted a discretionary licence in 2011 with the creation soon after of 10 model portfolios designed to suit “all horses for all courses”.
A change in personnel was also under foot with managing director James Hutson, previously of Rowan Dartington, brought into spearhead the new business in 2010 and, in 2013, Daryl Grundy joined to form a discretionary client management team (now eight strong) to work with direct clients.
Another string to the bow is an integrated financial planning side to the business, which Grundy says is crucial to its success.
“I still see issues around the city where people have recognised you need to have the two functions in there but there are two separate departments that raise two separate bills,” he says.
“Ours is a single pricing for the entire service. The nature of how we structure our portfolios for clients allows us to be prepared to access parts of the market that perhaps the biggest players cannot. We can have stock in our portfolio where the market cap is £200m to £300m.”
Adds Hutson: “We can move around the market a little less noticed. Back in my institutional days, we would meet very large fund managers that had so much money that they spent their day not knowing what to do because they literally couldn’t get what they wanted to buy. You would give them the idea of even a small FTSE 100 company, but even then their hands were sometimes tied.”
Something for everyone
Still a young business, it is impressive how the Arjent team has quickly built up what it believes is a broad range of products to suit “various channels, budgets and risk appetites.”
While coy about current assets under management, the team are already talking about what they do and do not want the business to be when it reaches maturity.
“The ambition here isn’t to be the next Hargreaves Lansdown or Close Brothers and I don’t think we will ever have more than £2bn to £3bn under management,” says Grundy.
“From the experience I have had with larger institutions, I think people are much more prone to seeking out that tighter relationship with a smaller house where they have longevity of manager. We’ll build a team where people are committed to the product here for the next decade so we can deliver that continuity.”
Arjent are strong believers in active management, and are happy to seed new funds (some in the private client portfolios are as small as £40m).
However, the team concedes that a problem it wrestled with last year, is what it can do away from the mainstream equity markets that gives less volatility and a return. This has been achieved by using long/short managers in both the credit and the equity space. Absolute return funds used include Odey Swan, Smith & Williamson Enterprise and Henderson European Absolute Return.
“Our clients tend to think much more like business owners where they take ownership of a company but recognise that it may take a bit of time for the story and the management team brought to the table to come through,” adds Grundy.
“As business owners, as a lot of them are or have been, they’ve already gone through that experience themselves. Each client is different but a lot of them will allow us the flexibility to step away from the benchmark.”
As a bag of geographies, Hutson says he still looks to maintain the US as the Western market of choice with the UK behind that.
He explains: “If we look at what the UK did last year against the US, then it wasn’t that exciting; on that basis is there some room for the UK to catch up this year? Possibly. The waters will likely stay muddied in the first six months of the year until we get to the General Election in May and we see some clarity going forward, but potentially there is room for re-rating in the UK in the second half of this year.”
UK equity funds from the likes of Schroders, Investec, Unicorn are preferred, with Threadneedle, JPMorgan and Polar Capital Technology in the US.
Adds Hutson: “When we have our macro discussion, we can filter down to not only a general macro theme but also to a specific industrial sector if that’s the path we are due to take. It is a case of ‘Are we picking growth in a region, are we picking income or value?’ There are plenty of funds out there that allow you to have that multi-tier picking.”
Generally speaking, Arjent’s portfolios retain a modest overweight to emerging markets, despite recent volatility.
“Name an emerging market that isn’t having its problems – there’s a slowdown in China, various issues in Brazil, there are economic and political issues in Russia, while India isn’t delivering as fast as we were hoping,” concedes Hutson.
“That said, we know that with emerging markets comes increased volatility – that has been a story for decades now – and we’ve just entered another period where we are getting volatility. But quite frankly we are investing for our clients from the medium to long term anyway, so I think we can stomach a bit of short-term volatility. We are not going to trade too heavily around those stories just because it’s a short-term issue.”
All-encompassing global emerging market funds are preferred rather than to mine down to individual geographies, with options from Invesco, BlackRock and Lazard in portfolios.
Turning to fixed income, and Grundy concedes that bonds feel increasingly like a one-way trade. While the house view is that any interest rate rises is a problem for 2016 in the UK rather than this year, he ponders how much more value can be squeezed out of the market.
“If you have to have fixed income in portfolios as a client requirement, then you have to be more dynamic in your search,” he says.
“You can’t just simply buy gilts and corporates, you have to look at long/shorts and people doing clever things in the corporate space. Up until fairly recently, you could use some of the key property investment trusts because they were almost behaving like bonds with 6% to 7% yield and a lot of upside. But again, how much more can we squeeze out of that market?”
Adds Hutson: “There will come a point when rate rises do start to trickle in and right now, if we look at the corporate space, we continue to prefer higher-quality paper over high yield. I can see that view starting to become even stronger as we start to get those rises in and we take the foot off the accelerator in the gilt space and put a bit more into corporate credit.”
Beyond these shores
In 2014 the team were invested in UK property, which performed strongly, although towards the back end of the year a decision was taken to move out and take positions in better value European and global property trusts, which again picked up. Funds used are the Premier Pan European Property Share Fund and Standard Life Global REIT, both of which have delivered mid-teen returns over the past quarter.
Still, Hutson points out that individuals with a specific income bias do not tend to become Arjent clients.
“Our corporate belief here is all about total return, because when you map a client’s return requirement it always pushes over and above what you can get from a natural yield,” he explains.
“Our belief in our role and responsibility is to maintain and protect the real value of that client’s assets, so we tend not to take those income mandates on because it also restricts our ability to asset allocate, because they’ve told us what to do.”
Given the belief in active management it might be a surprise to hear that the team does use some passive ETFs, though this is currently restricted to the fixed income space.
“Our core offering is to try and add value through active selection, but the way I see it we are actively choosing to a degree certain ETF products where we think the return-to-cost pay-off makes sense,” says Grundy.
“When we look at our equity geographies, we try and select something that is more of an active product – we haven’t stepped into the realm of ETFs in those areas yet. But I think we would always consider it if we felt there wasn’t any particular macro trend we were seeking to follow.”
He stresses it should be his duty to try and deliver some out-performance potential at every single level, and part of that is by choosing an active manager.
“If you use an ETF you are the market less the cost of running it. Our start would be trying to find a manager that maybe squeezes 1% to 2% in addition to market return, that’s worth us paying an extra 0.25% for that.”