In the third of our new series, Portfolio Adviser hears from RWC Partners head of European distribution Gary Tuffield (pictured right)
Which particular asset classes and strategies do you anticipate your intermediary clients focusing on over the second half of the year and into 2022?
The last decade has been characterised by ultra-low interest rates and significant monetary support from central banks. That environment has favoured equities – and particularly long-duration equities such as technology companies, which have dominated index returns, particularly in the US.
The pandemic has, however, created significant supply-side issues and, when coupled with expansive money supply, has potentially wrong-footed investors as inflation has reared its head. We are already witnessing a rotation into unloved areas such emerging markets and UK equities where valuations look appealing, and you have a greater exposure to commodities and cyclical sectors. This trend has been beneficial for RWC and I expect it to continue for some time.
Equity income investing has been put on the backburner for a number of years but this should change as investors prize stability. Volatility is likely to remain elevated due to the tug of war we are witnessing between inflationary pressures and long-term structural deflationary forces. Nick Clay and the RWC Global Equity Income team should be well placed to benefit in such an environment.
Should end-investors – and, by association, asset managers – be thinking beyond equity and bond investments? Towards what sort of areas?
Liquid alternatives have not covered themselves in glory since the emergence of the moniker and a plethora of fund launches post the global financial crisis. Complexity, opacity, high fees and poor returns have left many investors disappointed. It appears that the pandemic has revitalised the sector, however, with strong returns across the alternatives spectrum over the last 12 months and fund launches turning net positive.
If you believe that certain parts of the equity market looked stretched and that the 30-year bull market in bonds has finally run out of steam, then this once jaded asset class may be able to re-establish itself and attract flows from the conventional 60/40 portfolio or as a complement to it. RWC’s Diversified Returns team have demonstrated it is possible to provide positive returns when both the 60 and the 40 are losing value.
“Assessment of value will hopefully shine a spotlight on poor governance practices”
Given client and regulatory pressure on fees and charges, how is your business delivering value for money to intermediaries and end-clients?
I am a big fan of the FCA’s assessment of value project, which is a positive step by the regulator. The asset management industry is grossly oversupplied and has been over-earning while under-delivering for many years. Assessment of value holds firms to account and will hopefully shine a spotlight on poor governance practices and force asset managers to address expensive, poorly performing fund ranges and fragmented corporate cultures.
This is a challenging dynamic for the industry as closing or changing fee-generating strategies never sits well with CEOs and their shareholders. Being a private company with a simple operating model that encourages accountability provides a sustainable environment for our investment teams to generate alpha and for our clients to experience successful outcomes. If past performance isn’t a guide to future performance, then what is? Identifying good corporate culture is a decent place to start.
How much of your distribution is currently oriented towards ESG issues and sustainable investing? How do you see this evolving over the next 18 months?
All eight of our investment management teams at RWC have incorporated ESG into their processes – and two specialise in active engagement. That knowledge and experience has been immeasurable as our other teams have evolved their own engagement practices. Active management is a superior offering to passive when it comes to ESG investing and it is pleasing to see a swing back to active managers over the last year as fundamentals have reasserted themselves and investors realise the pitfalls of a cookie-cutter approach to ESG.
Authenticity is critical with regard to ESG and I expect to see fund buyers continuing to evolve their processes and aligning themselves with managers that clearly outline their beliefs and engagement activities. I do, however, worry about the correlation with ESG investing and the quality growth style. The two have moved in lockstep with one another and, as we know, nothing lasts forever. I hope investors are not sleep-walking into a decade of poor returns having bought overpriced assets based on blunt inputs from external tools. Hopefully, active engagement trumps divestment.
In what ways do you think the experience of the last 18 months has permanently affected or changed the asset management sector?
The last 18 months has demonstrated how resilient and adaptable the industry is, but it has also shown how impactful it can be to the world in which we live. The asset management sector has certainly had a wake-up call around responsible, sustainable investing as well as diversity and inclusion within the industry itself. RWC has donated more than £300,000 to various charities over the recent period while also supporting diversity initiatives, such as 10,000 Black Interns, to improve cognitive thinking across the company.
The client engagement experience has dramatically evolved as we have all had to embrace new technology and working practices. This has forced the asset management industry – finally – to enter the 21st century. Conference calls have become a thing of the past, having been rapidly eclipsed by Zoom and other online web platforms. Digital marketing and data intelligence are now driving consumer engagement, product development and ultimately personalisation. The asset management industry will have to continue to adapt if it wants to rebuild trust and maintain its relevance to consumers, especially to Gen Z-ers, who are more likely to gather financial information in chat rooms rather than through industry publications.
“Clients want to experience the culture of an organisation, which is hard to do over the web”
How do you plan to balance face-to-face and virtual distribution? Have you identified aspects where one is especially better (or worse) than the other?
My attention span has always been short but it appears to have vanished over the last six months. The length of internal and external meetings has certainly shortened as we all appear to be suffering from the dreaded ‘Zoom fatigue’. When it comes to client research or operational due diligence, there is no substitute for face-to-face meetings. Clients want to come in and kick the tyres and experience the culture of an organisation. That is very hard to achieve over the web.
Are you hoping to manage a staycation or to get abroad this summer? Either way, what’s the plan?
Like many people, I have not left the country for 18-plus months so we are braving the PCR tests and hopefully venturing to Portugal this month. I can’t wait!
What aspects of your own lockdown routine do you expect to continue with as people migrate back to office-working?
Spending more time with my family and setting aside time to do the odd school run or pick-up. I am also really looking forward to seeing more of my colleagues and clients, mainly because it has been too easy to navigate my way to the fridge, which hasn’t helped my waistline.
More generally, what are you expecting from ‘the new normal’?
Better employee engagement. Simply ‘checking in’ on colleagues more, and picking up the phone to do so, is something I and other leaders in the firm will continue to dedicate more time to do.
You can read other editions of Track to the Future here.
