The models are fund-based, though for certain wealthier clients a basket of UK equities – selected by Beaney – is preferred to domestically focused funds.
“Our portfolios tend to do better in bear markets than in bull markets, which I think is a validation of our style,” says Beaney.
“In up markets, we tend to perform along with the market, and in down markets we outperform, as we have over the past five years. We are not going short or trying to be clever – our experience says that’s a mug’s game.”
With that in mind, the team tends to stick to long-only unit trusts rather than dabble in absolute return vehicles, which Meyer believes generally are only useful in a short period of a wider market cycle.
He says: “In many ways, the costs of getting that absolute return structure are greater than the return. Most of these people are managing to a mandate that will be cash but to achieve, say, cash plus 4%, which a lot of them are saying they need to get to sell their fund, they must be taking too much risk in portfolio construction. So why pay for it?”
For Beaney, another problem with absolute return, as with strategic bond funds, is that to some degree a wealth manager is outsourcing their asset allocation to the fund manager. Still, he says he has used some hedge funds and index trackers at certain points in the cycle.
“There’s a lot of talk about cost savings from trackers but if you had tracked the UK market over the past three years, you may have saved yourself 7% in fees but you cost yourself 7% in performance, as that’s been the average outperformance from active managers,” he says.
“We are pragmatic enough to say each product has its place and time, and we will use our skills to try to maximise our returns by using whichever products suit.”
The team’s asset allocation within the past five years has only changed at the margin.
Since 2010, an overweight has been held in equities, with an underweight in fixed income. Within fixed income, gilts are accessed directly or with ETFs used to get exposure to different parts of the bond market.
“We’ve had index-linked gilts, short-dated gilts, short-dated corporate bonds, corporate bonds ex-financials, and we have increased and reduced duration using those,” says Beaney.
“Broadly, in fixed income we think we can add the value, and take our own views on duration and yields.”
The one fixed-income fund that is used in the models is Michael Hasenstab’s Templeton Global Total Return Bond Fund.
“Most of the return Hasenstab is getting at the moment is from currency positioningand I can’t pretend to be able to do that, so I am buying something I can’t do.”
“He’s an excellent manager, with a great record behind him. There may be a time when I don’t need to buy his services but I can’t call those currency positions or buy into those fringe markets, and we don’t pretend to be credit analysts so we don’t buy individual corporates.”
