In the latest in our regular series, Portfolio Adviser hears from Chris Nicholas, senior vice-president, intermediaries distribution at Fiera Capital (pictured below right)
Which particular asset classes and strategies do you anticipate your intermediary clients focusing on in 2024?
Intermediaries are, by definition, a very disparate group of investors, so it is hard to generalise. Rather than just pushing the ‘fund du jour’ that management at other firms might prescribe as the corporate focus, we at Fiera prefer to proactively engage with clients and prospects alike to uncover which areas are likely to be in focus and/or where they are looking to switch from incumbent managers.
Early indications for 2024 include to a renewed interest in US smaller and mid-cap equities. Over the years, historically higher-growth companies have traded at a premium to their large-cap counterparts – yet today we have a situation where those higher-growth opportunities now trade at a discount. The feeling is the large-cap and mega-cap indices are becoming ever more concentrated in a handful of tech and AI stocks and the short or medium-term direction of these will govern the broader market’s directionality – both at a US and global equity index level.
It was recently cited that some 40% of the Russell 2000 (small-cap) index have negative earnings – clearly interest rate hikes by the US Federal Reserve have been a challenge to many of these companies. For that reason, we are advocating a highly active and selective approach in this space to favour the more resilient companies with better prospects and more compelling fundamentals.
The other asset class that now comes up frequently in our conversations is emerging markets. Investors across Europe seem unanimously resigned to a lower-growth outlook across most developed markets. That elusive growth, however, is still available in many emerging and frontier markets. Our sense is that investors are taking a fresh look at this universe and we have strong capabilities in this space.
Should end-investors – and, by association, asset managers – be thinking beyond equity and bond investments? Towards what?
Although there has been some disillusionment with the traditional 60/40 portfolio over the long term, this has still been a proven and effective combination for wealth creation. We still think this basic model is ‘fit for purpose’ – although it can be sensibly complemented with other assets on a case-by-case basis.
Ultimately, the intermediaries we partner with are the ones that will always know the end-client and their risk tolerance, needs and overall situation best of all. Although we might sometimes enjoy challenging an intermediary’s mindset or debate the merits of a particular asset class, it is always with a focus on where they are looking to incorporate active management within their chosen framework.
At Fiera, we offer a complimentary service where, if a client shares with us their typical portfolio, our CIO office can conduct a regression analysis showing the impact of adding an asset class to an existing portfolio and the implications for historic risk/returns.
What I have observed in recent years is a transition from outright new business pitches to more of an informative/educational type of meeting whereby we will discuss the history and evolution of an asset class as well as a balanced overview of the pros and cons. As a team, we have done this extensively with smaller emerging markets and frontiers as well as private markets.
To what extent do private assets and markets fit into your thinking? What are the currents pros and cons for investors?
Given our roots as a Canadian asset manager, this is a key pillar of our business globally. Over the last 15 years, Fiera has built up private markets capabilities significantly and, today, we have a team of 140 covering 20 strategies across natural capital, infrastructure, private credit, private equity and real estate.
We have seen intermediaries in other geographies appreciate benefits like low correlations, lower volatility and the smoothing of return profiles when incorporating these types of investments. Investors rightly value the steady income these assets tend to generate, as well as their longer-term sustainability.
Given client and regulatory pressure on charges, how is your business delivering value for money to intermediaries and end-clients?
As active managers, we are well aware of the ongoing pressure on fees from end-clients, intermediaries and the regulator. Many active managers have serially disappointed investors and given active management a bad name in some circles.
The most critical thing for us is that the underlying client reaches their long-term investment goal. As an active manager that charges fees, we regularly review against the broader peer group to ensure we remain competitive. What we are trying to do is to offer consistently superior, long-term results above and beyond our respective benchmarks, risk-adjusted and on a net-of-fees basis. This is very much validated when you look across Fiera’s Ucits offerings.
How much of your distribution is currently oriented towards climate change, net zero, biodiversity and other segments of sustainable investing? How do you see this approach to investing evolving?
At Fiera, we are committed to ensuring environmental, social and governance considerations are fully integrated into our investment processes from sourcing, due-diligence and risk assessment to decision-making and post-investment portfolio management.
We adopt this approach for both our public and private market strategies and, as a firm, are a signatory of the UN’s Principles for Responsible Investment, the Net Zero Asset Managers Initiative and the Task Force for Climate Related Financial Disclosures. Every investment we make is optimised not just for financial returns, but also for the long-term ESG impact of the decision, ensuring we are fostering sustainable prosperity for all our stakeholders.
How are you now balancing face-to-face and virtual distribution? In a similar vein, how are you balancing working from home and in the office?
When we first engage with a client or prospect we always ask, How would you like to work with us? Being a bit of a dinosaur in this industry, I was taught to pick up the phone – par for the course back in the ‘80s … the 1980s! I do find you get far more from a verbal conversation than an email – both in background, context and tone. It is an opportunity to ask questions and, in turn, to tell our boutiques’ stories.
That said, some clients and prospects prefer emails – and the client is always right! I enjoy a face-to-face wherever possible for the same reasons – it is a great way to build rapport and get to know someone, their business, interests and motivations. I will always opt for this wherever possible.
For me, getting the balance right is about saving for the work from home days those internal activities, such as CRM updates, marketing materials, internal meetings, follow-ups and compliance training and making calls to clients. It does not always work that way in practice but, ultimately, it is about being flexible and adaptable around clients’ and the businesses requirements.
What do you do outside of work?
I enjoy scouring England in pursuit of the perfect scotch egg and will often combine business with pleasure to that end wherever possible! Other interests are fly fishing for trout (badly), classic cars and cooking.
What is the most extraordinary thing you have seen in your life?
Since you now know I like old cars, this is the lens through which I see the world! I am always amazed that car dashboards are all so smooth with big displays, multicoloured lighting, joysticks and countless menus. Whatever happened to good old dials and knobs?!
It really does feel to me that one minute I am growing up watching Star Trek in the 1970s and seeing the crew of the Enterprise using a communicator – which is effectively what we now call a smartphone and has since become reality. Only this morning, on Radio 4, they were talking about commercialising a flying car – at least it won’t be adversely affected by potholes! In short, then, it is technology and the rapid progress that has been made that I find staggering.
Finally, in what ways do you see the asset management sector evolving over the next few years?
Consolidation is a trend that looks to be here to stay – and it seems not a day goes by without one wealth manager merging with or acquiring another. I can see the interaction between intermediaries and asset managers becoming more technology-focused, through platforms such as Fundpath, and I would not be surprised to see the continued focus on driving down costs leading intermediaries increasingly to use TER budgets, blending direct equities and bonds with passive products and reserving their ‘active budgets’ for only the very best managers. Perhaps that is wishful thinking rather than a prediction!
I do not get directly involved with investment trusts, but I know clients of ours are doing a huge amount to publicise the importance of accurate costs disclosure in this area – I am all for this and am hopeful of progress here. I also think wealth management as a concept will be much more mainstream too. With an increased amount of financial education and awareness in schools, investing will be seen as less boring and more of a necessity across society. Finally, it feels like actively-managed ETFs are something that could gain a lot more traction from hereon in.
