Visitors to Wells Capital Investment Solutions are soon reminded that this is a company on a growth trajectory. A pile of
sealed cardboard boxes, stacked neatly against the office wall, is evidence of the firm’s recent acquisition of Reeves Investment Management.
The deal, which was completed in early May, boosted Wells Capital’s assets under management to £135m and increased its headcount by two, as Eric Clapton, a former partner at Reeves, joined the combined business as managing director and Michael Hill took on a newly-created investment manager role.
The merger is the latest development for a firm which began life in 2000 as the in-house research arm of Tunbridge Wells-based adviser AV Trinity. Invest¬ment director Chris Mayo, who founded the division alongside managing director Karen Vidler, says it was born out of frustration at poorly-performing insurance-managed funds.
“They were too big and too bulky,” Mayo explains. “So we were prepared to build our own portfolios with the objective of outperforming an insurance company balanced fund. Karen set up a best-buy list for use by advisers within the firm.”
Around the same time, Mayo and Vidler started running a model portfolio for clients of AV Trinity’s employee benefits service, on the Skandia life and pensions wrap, and in 2007 decided to open their investment process to a wider audience.
In February 2008, the company received regulatory approval to run its research division as an independently-authorised discretionary fund manager under the Fund Intelligence brand – a name registered with Companies House since 2000.
Then, last September, with the approaching RDR deadline prompting growing numbers of IFAs to outsource their investment management function, Fund Intelligence rebranded itself Wells Capital Investment Solutions, to better reflect its broad adviser proposition.
Today, Wells Capital offers four multi-asset model portfolios (available directly and via the Ascentric, Axa Elevate, Novia and Nucleus platforms), a bespoke service for IFAs with wealthy investors, and a legacy service supporting advisers who take on clients with existing life company investments, which cannot be redeemed for tax or penalty reasons, or managed by a discretionary manager.
About 75% of Wells Capital’s assets under management are held in the model portfolios, Mayo says, and the additional £50m from the Reeves deal will be integrated into the strategies in the next few months.
AV Trinity, which shares the same building as Wells Capital, is the biggest single source of assets for the service. But business development manager Nick Frank says the portfolios have attracted growing interest from “external” IFAs since early 2011, when two of the models hit their three-year anniversaries.
Wells Capital has 12 such external accounts – mostly from small financial advisers with one to three employees and assets of about £3m. Clients are typically located in southeast England, Frank adds, although some are as far north as Stockton-on-Tees.
Wells Capital prides itself on the fact that all of its senior management team has worked for IFA organisations, and are attuned to the needs of advisers.
“As well as offering discretionary model portfolios, we can offer access to our fund research, helping advisers select their own funds when appropriate,” says Mayo. “We can offer product information – we have a dedicated person who specifically looks at structured products, offshore bond terms and what Sipps are available. So for the adviser, it is like having an outsourced investment team.”
The model portfolio investment process seeks to blend top-down views with bottom-up fund selection. Macroeconomic strategy is reviewed at least once a month by the firm’s investment committee, which comprises Mayo, Vidler, Clapton and Hill; as well as fund analyst Emma Clarke and external member Clive Hale, a former CIO at Skandia Investment Management and founder of independent consultancy VFTB. All members of the committee are expected to contribute to the discussion, Frank says, with each session typically lasting two hours.
Mayo is responsible for reflecting the views of the committee through asset allocation and fund selection.
The models range from Conservative – which is benchmarked against the FTSE APCIMS Conservative Index and holds a maximum of 40% in equities – to Growth, which can invest up to 100% of its assets in shares.
The process excludes investment trusts, ETFs and structured products – owing to Mayo’s concerns over liquidity, dealing costs and accessibility, respectively – and the model portfolios focus instead on IMA-listed, open-ended vehicles.
“I will not go and buy something that cannot be sold quickly because of liquidity issues, or cannot be bought on a certain platform,” he adds. “It keeps it simple. They are all daily-dealing unit trusts.”
On asset allocation, Mayo says the committee has been broadly defensive for the past year, leading him to maintain an equity income bias in the higher-risk Balanced and Growth models.
Key holdings include such sector heavyweights as Neil Woodford’s £9bn Invesco Perpetual Income Oeic, Adrian Frost and Adrian Gosden’s £4bn Artemis Income unit trust, and Carl Stick’s £450m Rathbone Income Fund. Outside the UK, Mayo also uses Newton Asian Income, a £2bn Oeic managed by Jason Pidcock that invests across Asia, including Australia and New Zealand but excluding Japan.
Geographically, the Wells Capital models are skewed away from Europe and towards the US. Mayo is currently neutral on emerging market equities but remains upbeat on the region on a longer-term view. The key holding here is Austin Forey’s JPM Emerging Markets Fund, which Mayo favours because of its team-based approach and regional diversification.
In fixed income, the models are underweight gilts and overweight corporate bonds. Mayo changed the fund line-up this year by removing Invesco’s Corporate Bond and Tactical Bond Oeics, owing to concerns over their financials exposure. His core position is M&G Optimal Income, which features across the portfolios.
“[Richard Woolnough] is able to move around his fund in different market scenarios,” he says. “He called the financial crisis well by being underweight banks and financials. So for the fixed interest part he is a solid, consistent fund manager – the kind of manager we like.”
Taking a risk
Although the portfolios are defensively positioned, Mayo says equities remain attractive on a long-term basis and he is poised to add risk when opportunities arise.
This could be achieved by adding a FTSE 100 unit trust tracker to gain market exposure when prices fall, he suggests, before switching the allocation into an actively-managed UK equity fund. But any aggressive “risk-on” shifts are unlikely, given Wells Capital’s conservative, low-volatility approach.
“The next six months are so uncertain that we are happy to keep with our current positioning before we take more of a growth stance on things,” Mayo adds.
“Markets started the year positively but we still thought there were so many unknowns, in Europe especially, that we did not rush into the trade and increase the beta of our portfolios.
“Year-to-date, our numbers are positive relative to our peer groups, because we participate in rallies and we hold up well with the falls.”