“It is a Venn diagram with a very big overlap,” Black explains. “So all the people in asset management continue to have regular contact with clients. That is important because it means they understand whose money they are managing when they get to their desk in the morning.
“You’re naked if you go to a meeting with the board of trustees and someone turns to page 15 of a report and asks ‘why do you own that company?’ and you say, ‘I’ll get back to you’. That is always the wrong answer.”
Tactical call
Sarasin & Partners offers clients segregated or tailored portfolios built around a range of pooled funds, which include not just its own but also specialist third party funds that might be called on for exposure to asset classes such as smaller companies.
Portfolios are then created according to how much income and capital are required, the investment time horizon and how much risk a client is prepared to shoulder.
The level of risk is referenced to a ‘neutral equity weighting’, ranging from low risk (20%) through to high (80%). Within these ranges the precise allocation at any time will depend on the house view of asset markets.
Looking under the bonnet, Black says there is a high element of commonality across the portfolios so even if one has a 30% equity and another has 70%, they will both comprise most of the same securities but in different sizes and combinations.
“It is important that when we make a tactical asset allocation call across portfolios we know it is carried out as uniformly as possible across our client base. If we make a call on a stock for the buy list then we expect it to be included in portfolios fairly quickly.”
In terms of ideas for the portfolios, alternatives have increasingly made an appearance of late, in particular gold, as well as infrastructure, solar and renewable energy through investment trusts. Infrastructure has been a good source of cashflow when bonds have yielded so little, Black says.
The firm also has a team that runs a global Reit, which, according to Black, is a mainstay in almost all balanced and multi asset portfolios as a source of alpha.
In terms of tactical asset allocation, the firm has been underweight in bonds with short duration and slightly in equities.
“If you are targeting a return of inflation plus 3 or 4% then bonds are a challenge. We all know why we need to own some bonds. If there is another financial crisis then good quality government bonds or supranational bonds will be the only game in town as in 2008, even with yields of 1.1% or 1.2%.”
