Shard Capital is a firm with many hats to choose from. Its disparate bunch of businesses includes stockbroking, direct lending, a model portfolio service and a listed vehicle investing in early stage technology companies – but it’s the wealth management arm that ties everything together.
According to Mike Hollings, Shard Capital’s chief investment officer, while all the other parts of the business are successful and profitable, wealth management is the “sweet spot”.
Its wealth management offering includes a managed portfolio service for retail clients called Mosaic, as well as a bespoke discretionary service for high net-worth individuals. Hollings (pictured left, above) chairs the investment committee of Mosaic, which comprises five different risk strategies, and advises on bespoke portfolios for family offices, as well as professional and institutional investors.
Hollings joined Shard Capital in July 2014 from Kola Capital, a multi-strategy fund he set up in 2012. He has more than 30 years’ experience in investment banking and investment management at firms including Morgan Stanley, Societe Generale and Rathbones, with a specialisation in convertible bonds and equities.
Between 2005 and 2009, Hollings was CIO at Ansbacher Private Bank. It was here he first met Neil Williams, who joined Shard Capital in 2018 from LGT Vestra, where he spent five years as head of the company’s US arm. Before that, he held several roles at Matrix Investment Management and at Ansbacher.
Williams (right, above) is now a partner at Shard Capital subsidiary LeifBridge, a wealth management business launched in July that is aimed at immigrants living in the UK who are US expats.
“I was running high net-worth money at Ansbacher and that’s when we first worked together,” says Hollings. “Then Neil and I spoke a couple years ago about what Shard Capital was trying to do and he said, ‘This is an opportunity to set up a similar business’. So Neil joined two years ago.”
According to Williams, there is a need to help US expats manage both their investments and the complex tax situation.
He says: “Shard Capital being primarily a custody and dealing platform with investment management businesses integrated into it, we thought it was the ideal partner to help us develop a proposition for US expats in particularly niche area.
“Because the US is one of the only countries in the world that taxes on citizenship and not residency, tax plays a large part for any non US-based investor. We marry up the investment strategy with the tax piece to ensure that ultimately the client benefits long term.”
‘I can do my job anywhere’
What effect has lockdown had on establishing a business? Williams says from an internal perspective, the switch to remote working was very smooth, owing to efficient technology. Hollings agrees that from an operations perspective Shard Capital has benefited from home working.
“I always said to my boss, ‘I can do my job from anywhere. I can sit in the house, I can sit in Monaco, I can sit on a yacht, as long I’ve got a Bloomberg terminal, I can do my job’.”
The Shard Capital investment team has a weekly virtual meeting, which rather than hindering the process, Hollings argues, has actually made the trading of funds more efficient. Decisions are now made simply on a show of hands on the screen. “Personally, I’ve found no difference at all,” he says.
Hollings is a self-confessed “old school” investment manager but says he is also a convert to virtual fund manager meetings.
“I really used to enjoy conferences, and I think that’s a real shame,” he says. “But being old school, I thought the best way to meet the managers was just to sit in a room with them and listen to what they say. However, with Teams and Zoom, you connect with the manager, share the screen, get the presentation; it all works really well and I’m actually a convert now.”
Difficult for junior investment managers to learn at the moment
Williams is a bit more circumspect, saying virtual interaction has pros and cons. From the clients’ point of view, he notes there was an initial “change of habits” but, in the main, the majority are used to the new environment of engaging through a computer screen.
“The downside is it’s very easy for people to switch off if the topic or the subject matter is uninspiring, and it’s the same with clients.”
The wider Shard Capital business has won clients in this environment but, as LeifBridge is just a few months old, Williams says it’s too soon to take a tally. That said, it has seen a solid number of enquiries from existing relationships.
Williams believes winning new clients and building relationships in the coming months will be a challenge, not just at Shard Capital and LeifBridge, but across the wider industry, if lockdowns increase and home working continues.
“For the younger people coming through, it must be very difficult at the moment because they haven’t got those existing relationships and networks, whereas we fortunately do.”
Hollings adds: “If you’re a graduate trainee, or anybody joining a business, you tend to sit next to the fund manager or the trader, and learn on the job. Doing that remotely is a bit harder. For the younger people starting in this business now, that is a definite downside.”
Cautious positioning by nature
Shard Capital’s portfolios were defensively positioned heading into the Covid crisis on a long-held cautious view on global debt levels, negative interest rates and “repressive” monetary regimes and its effect on asset flows and bond prices. Hollings says his background as a convertible bond specialist makes him naturally focus on capital protection, which is at the heart of the investment philosophy.
“I would rather get fired by a client because a market’s up 10% and I’m only up 6%, rather than the market is down 20% and I’m down 25%.”
Hollings’ experience of previous financial crises helped him take the Covid-induced volatility in his stride, but the initial sell-off week in March did make him question whether this time was different.
“In the past, central banks intervening, cutting rates and pumping money in made a difference, but this is a pandemic; it’s something that affects the health and livelihood of people. And we haven’t really faced anything like this before.”
He says the fact that the market bounced back so quickly meant opportunities were there to be had, though the portfolios didn’t undergo a huge rebalancing. “I’m not saying we caught the bottom, but we certainly switched quickly enough to catch a lot of the recovery.”
Williams adds: “Going into it, we were we were well positioned, the volatility just gave us an opportunity to actually pick up some assets cheaper than they were in January and February.”
Catching the tech wave
The team bought the First Trust Cloud Computing ETF, a strategy that resonated with Hollings late last year, prior to the Covid outbreak. Similarly, the team added positions in tech-exposed funds to catch the wave. This came at the expense of UK small and mid-cap exposure, which the team overweighted at the end of last year when the Conservatives swept to victory in the election with a strong mandate for Brexit.
“When the pandemic came and Brexit was pushed to the background, we took the view that we need to get rid of some domestic focus and get more international names,” says Hollings.
The UK weighting is now neutral as a result, but he is confident domestic assets will do well over the longer term, even in the event of a no-deal Brexit – it’s just a case of timing.
“Timing is always difficult, though my gut is to overweight the UK, but it’s about when you pull the trigger,” he says.
Williams adds: “If your time horizon is between two and five years, then the UK is probably a good place to allocate some money, given relative valuations to other areas of the world.”
‘Central banks have messed things up spectacularly’
Asking about fixed interest sets Hollings off on a rant about his main bugbear: central bank intervention in capital markets and its effect on asset classes, particularly bonds.
“Central banks have messed things up spectacularly,” he says. “They’ve done what they’ve done and they got it wrong. They felt they had to cover their tracks, so they kept cutting rates.”
He adds: “Just think of it, $17trn (£13.01trn) in negative-yielding bonds – lending money and paying for the privilege. It’s just nuts. Central banks say they’ve done a great job – whatever. They’ve done a terrible job.
“I started in ’85 and it’s been a bull market in bonds for 35 years. Bonds used to be the de-correlator, the lower volatility income-producing part of your portfolio. They no longer perform that function, and in most cases they don’t produce any income, not in real terms anyway.”
But Hollings says there are opportunities in emerging market local currency sovereign bonds. Compared with a 10-year developed market corporate bond yielding in the region of 1%, certain emerging sovereign bonds in local currencies have the potential to yield 3-4% then a further 3-4%, taking into account a weak dollar, he says.
“As regards investing in emerging market government bonds, if you invest in local currency, then the only risk you take is currency, not counterparty risk,” according to Hollings. “I’m not saying it’s an insignificant risk, but at certain points in time it isn’t about avoiding risk, it is about making sure you are getting paid appropriately for the risk the market is asking you to take.”
The portfolios are also long on gold and precious metals and contain some inflation protection. The team is also keen on infrastructure and mulling the best way to access the asset class.
Passing on an unwanted legacy to our children
Just as we are wrapping up the interview, the conversation returns to Hollings’ favourite subject. “I’ve had a blast. It’s been fun, but the legacy we’re passing to our children is disgraceful,” he says. “But the problem is that the majority of the population don’t really understand monetary policy or economics, so they don’t understand just how badly central banks got it wrong, which means they can flannel everybody.
“It’s tough for the kids now. It was tough before Covid and it’s even tougher now, and it is 100% somebody’s fault, because central banks didn’t have to keep bailing out markets. Praising central banks for ‘rescuing’ markets is like praising an arsonist for helping to put out the fire they started.
“If you know that if you get it wrong, you’re going to lose your money, then you think twice. If you know the central bank is going to bail you out, then you don’t think twice.”
