In the latest in our regular series, Portfolio Adviser hears from Larry Brennan, head of distribution at Tellworth Investments (pictured below right)
Which particular asset classes and strategies do you anticipate your intermediary clients focusing on in 2024?
As a boutique specialising in UK equities, it may come as no surprise to see us promoting the UK. Over the past few years, we have witnessed the wealth management community leaving the UK equity long-only space to the extent that some might wonder if they will ever come back to their domestic market.
Yet UK companies are now heavily discounted and there are signs that investors are looking for something other than the ‘Magnificent Seven’ trade. In 2023, a number of UK corporates relisted on the NYSE in order to capitalise on the 40% valuation uplift. This coincided with an increase in M&A activity – notably led by non-UK market participants. These trends paint a clear picture: UK valuations are cheap. Global and private investors have already sensed this shift, while our own domestic investors still have not generated enough conviction to buy … yet.
As inflation falls and interest rates peak, however – and with the prospect of a potentially business-friendly Labour government on the horizon –[ we believe the market is overlooking the potential of UK companies.
Tellworth’s strength lies in our deep expertise in UK equities, for which we see fertile ground for growth in our dynamic UK Smaller Companies and UK Equity Income strategies this year. For investors with a more cautious view, we have been building a very compelling absolute return business that continues to be successful.
Should end-investors – and, by association, asset managers – be thinking beyond equity and bond investments? Towards what?
Of course. While equities and bonds have been the cornerstones of traditional portfolios, the option to diversify further can only be a good thing. Alternative assets like infrastructure and private equity can provide uncorrelated returns, and it has been good to see LTAFs and other illiquid strategies gain traction over the last year. However, it is crucial that clients understand what a ‘lock-up’ means – it is a case of caveat emptor.
Long/short strategies, like our own UK Select and UK Dynamic Absolute Return funds, are another option for investors seeking diversification beyond the traditional 60/40 portfolio. Instead of chasing beta, we seek uncorrelated returns through our deep-dive, fundamental bottom-up absolute return strategies, unearthing alpha unavailable to traditional long-only equity funds.
“Liquidity is the key – if investors give you money, you must be able to give it back when they want it.”
To what extent do private assets and markets fit into your thinking? What are the current pros and cons for investors?
Our UK Smaller Companies team will not invest in any company with a market cap under £100m – and, in practice, that number has shifted closer to £200m. Liquidity is the key – if investors give you money, you must be able to give it back when they want it. Therefore, private markets is not an area we have been developing.
Given client and regulatory pressure on charges, how is your business delivering value for money to intermediaries and end-clients?
The Assessment of Value initiative has been a success story and confronts us all with the question ‘Are we worth it?’. Consumer Duty has done the same for our distributors. Our funds are competitive within their respective peer groups, while we promote Tellworth as a specialist and capacity-aware boutique. We do think investors should be open to paying a little more for actively managed funds run by specialists with a keen focus on capacity. Clients will always pay for the alpha generated – and there has been too much emphasis on driving down costs at the expense of potentially better returns.
We are a small team and do not enjoy all the resources of some larger groups. Our focus on delivering performance across a small number of relevant strategies and maintaining a high standard of communication from our investment team to clients all help the underlying investor.
“The way we invest means we can help management teams overcome threats and resolve issues, driving positive change through active engagement.”
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?
We have a strong ESG ethos at Tellworth and responsible investing has been part of what all our managers have been doing for years. Their assessment of a company’s ESG credentials is a fundamental aspect of analysing its financial prospects and the risks to any investment. Furthermore, because the way we invest involves such a high degree of contact with companies, particularly in the small and mid-cap space, we can help management teams overcome threats and resolve issues, driving positive change through active engagement.
While we may sometimes feel we should do more, we want to remain focused on our specialisms. We do not run impact products or funds that are overtly marketed as being sustainable. Instead, we have preferred to build up our core business first, embedding ESG across all our funds, reflecting our role as stewards of client capital. We see many investment firms in the same position – not needing to launch new products to cater to client demand for sustainable funds but recognising that good governance and good investor outcomes are more closely linked than ever. And, like many firms, we are signatories of the UN Principles for Responsible Investment.
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?
The industry I joined 23 years ago was all about visiting clients and demonstrating to one’s bosses that face-to-face meetings were in the diary each week. Over the last few years, there has been an accelerating move towards ‘quality engagement’ which does not have to involve a physical meeting as clients often just do not have time. Virtual meetings add another, more efficient, dimension to maintaining contact and developing relationships.
At Tellworth, we have a youthful team who all want to come into the office to exchange ideas and collaborate. When I am not out and about, I am in the office getting in the way.
What do you do outside of work?
We have a busy family life with one daughter and two sons, all adolescent and charming, but who seem to need me to drive them from activity to activity each weekend. My wife also works full-time, so it is a constant juggle. I enjoy endurance events (mainly running), golf and cricket.
What is the most extraordinary thing you have seen?
I was in the Army for six years before joining the fund management industry and there is a long list of things that, while not necessarily extraordinary, I wish I could do again. While on exercise in the Canadian Prairies in 1998, for example, I was lucky enough to call in live artillery onto a target. Navigating the terrain, understanding the objective and collaborating with my team to execute a complex manoeuvre – that is the kind of pressure that brings out the best in me. Watching the strategy unfold flawlessly – feeling the ground shake beneath my feet – was a rush akin to helping a new client find their way into a Tellworth fund!
Finally, in what ways do you see the asset management sector evolving over the next few years?
It is unoriginal to say there will be more consolidation – but it is true. It will continue to be a feature of our industry for years. The bigger groups will get bigger, there will be more fee pressure and fund selectors will increasingly use technology to do their due diligence, to centralise and behave collectively.
Somewhere in this evolving landscape, there remains a role for the boutique that nurtures talented investment professionals who think differently and want to work for brands with strong identities that offer something original. The Tellworth example is a good one. We are in the process of being acquired – subject to FCA approval – by Premier Miton Investors, which has a long pedigree of finding strong teams and giving them a good home. They want to keep the Tellworth brand as well, which is a very positive result for all of us.
