Technical Insight Seminar: Profile: Waverton Investment Management
Rob Kingsbury spoke with John Bellamy, director, head of Adviser Solutions and Mark Barrington director, head of Intermediary Sales and Marketing, at Waverton Investment Management, about the company’s approach to investment, its MPS service for financial advice firms and maintaining performance targets of CPI+% in an environment of rising inflation.
John Bellamy, director, head of Adviser Solutions
Mark Barrington, head of Intermediary Sales and Marketing
Discretionary fund manager Waverton Investment Management offers both bespoke discretionary fund management and a Managed Portfolio Service. The latter, which is the company’s primary offering to the financial advice market, is now in its tenth year and manages £1.5bn for financial advice firms.
The company was established as JO Hambro Investment Management in 1986, sold to Credit Suisse in 2001 and was part of a management buyout in 2013, when it became Waverton Investment Management.
It now has 150 staff, based in London and Edinburgh, with 30 people solely focussed on managing money and analysis, seven BDMs and a dedicated adviser services team. “We pride ourselves on the strength and breadth of our standalone investment team,” says Barrington.
The buyout re-established the company’s credentials as an independent owner-managed investment management house. Around 8o% of the firm’s staff have bought shares in the company.
Investment approach
In terms of the company’s investment approach, Bellamy says, “we’re objective-based investors, with clear targets for the Model Portfolio Service of inflation (CPI) plus a percentage figure commensurate with the level of risk the investor is taking, to be achieved over the investment cycle with the lowest level of risk we can manage.
“Since launch, the pattern of our returns has been to participate well in rising markets, protect better in falling markets and participate again as markets recover. Over the years we have been managing money as Waverton, we have proven we can achieve better returns with a lower level of risk.”
The way the investment team achieves this, Bellamy says, is to build portfolios of global, directly invested multi-asset funds. “We’ve always been invested globally. We see the global investment strategy as giving us the best opportunity to access more dynamic markets, sectors and companies.
“In all developed markets we have specialist research teams, and we will be using direct equities, as well as direct bonds and alternatives. This provides for greater control and transparency in our portfolios.”
Managed Portfolio Service
Waverton set up the Managed Portfolios Service in 2013 to simplify the investment process and administration for financial advice firms, and to provide a level of investment sophistication they could not deliver for their clients using advised portfolios.
“There is definite advantage to using a service like ours, where we spend all day every day focused on investment, and the discretionary authorisation enables us to act quickly when the need arises, when you need to be nimble within markets,” Bellamy says.
“Also,” adds Barrington, “there is a greater depth and breadth of holdings and diversification within our MPS than you would get within a single multi-asset fund, for example, in terms of being able to embrace not just equities and fixed income but also alternative holdings and the hedging strategies we employ, which would be very difficult to do within a single fund.”
Building blocks approach
Waverton offers advice firms what it terms as a ‘building blocks’ approach. Portfolios are constructed using four specialist Waverton OEIC Funds, which are managed specifically to form the building blocks of the model portfolios – the Waverton Sterling Bond, Strategic Equity, Absolute Return and Real Assets Funds – see below.
(Tactical asset allocation as at 08.11.21. Tactical asset allocation is subject to change.)
The underlying holdings of each fund are managed in a complementary way so that there is a consistent strategy throughout the portfolios.
“The advantages we have is that we are not restricted to the investments on any one given platform. We can access funds and vehicles from the entire marketplace, which may not be available directly on a platform, which means potential returns are not compromised,” says Bellamy.
“Consequently, we believe we can deliver an institutional quality portfolio that has direct equities and direct bonds and where we invest in third-party funds, the majority are off platform. We also use a range of hedging across the piste, for downside protection.
Waverton’s portfolios are available on 22 platforms. “Not being restricted in the investments held by the portfolios, means on whichever platform your client is, there is consistency of holdings, so you are going to get the same returns no matter what; your client outcome is going to be exactly the same. We find that simplification of client outcomes resonates well with advisers and paraplanners in terms of treating customers fairly.”
Barrington adds: “While on the face of it a client may see just four funds, actually what’s going on under the bonnet of those funds is really quite sophisticated. So, we place a lot of emphasis on transparency and reporting and showing the underlying holdings.”
Inflation issues
With inflation (CPI) having hit a 30 year high at 5.4% in December 2021, how will this affect the funds?
Bellamy says: “We undertake a review of the portfolios’ performance targets on a regular basis, looking at the outlook for different asset classes and what we feel they could return. As you can imagine, a lot of research is undertaken, and we publish the work that goes into it. We have just gone through the process in the light of the recent changes to inflation. We have made the decision to keep our CPI+ targets the same across the portfolios as we have confidence they are achievable, because of the amount of work we put into each of the asset classes.
“We publish our work on this because if we were advisers or paraplanners, before we signed up for a CPI+ mandate, we would want to see that company’s work on their ability to do CPI+ or not. And not just past returns but also their forward-looking expectations for different parts of the portfolio.”
ESG in portfolios
“ESG is becoming the norm in investing but work needs to be done on the way it is talked about and in helping investors to understand it,” Barrington says.
Waverton’s approach to ESG within the MPS is an inclusive rather than an exclusive approach. “We embed it in all our models rather than saying we have a dedicated ESG portfolio or MPS range. One of our managers put it rather nicely when he said, ‘We have green roots rather than green branches’.
“The fact that our approach to ESG is embedded in our research process and how we select stocks, working with companies to improve their focus on ESG rather than excluding them, we find resonates more with paraplanners and advisers. We’re pragmatic about what we hold, which means ESG is an outcome of what we do, not an objective.
“If paraplanners what to see how embedded ESG is in our investment process, if you run our portfolios through MSCI, they come out AA rated from an ESG point of view, which puts them in the top 10 of all portfolios, whether they are badged ESG or not.”
Due diligence on an MPS service
When undertaking due diligence on a firm offering a MPS, Barrington says, fundamental is the transparency offered by the firm into the underlying investment holdings and the charges. “Then I suggest looking for independent verification of what the DFM is saying. We produce a comprehensive due diligence pack which is on our website, which is built around our engagement with threesixty services, ARC, Defaqto, Rayner Spencer Mills, all the third-party agencies. It’s seeing what those third-party agencies say across the board, as that will give you a level playing field on which to start the due diligence process.”
“From the investment side,” adds Bellamy, “I’d be looking to take a deep dive into their processes. If I was talking to a fund of fund house, I’d be asking what the last switch was made and to see the research notes on the fund sold and the fund purchased, as well as the asset allocation minutes. I’d also put stock in how long it took to get the information to me.”
“Many DFMs are focussed primarily on their bespoke service but what differentiates us, I think,” says Barrington, “is that, while we have our own bespoke service, quite often the best solution to meet the investment needs of the client is a MPS on a platform. And where we see that is the solution and will provide the best outcome for the client, we will say that.”
Platforms on which the Waverton portfolios are available:
Advance by Embark – AEGON – AJ Bell – Ascentric – Aviva – Elevate – Elevate Model Manager – Embark – Fidelity – Fusion – Hubwise – James Hay – Novia – Novia Global – Nucleus – Old Mutual (Quilter) – Platform One – Praemium – Seven IM – Standard Life – Transact
Website: https://www.waverton.co.uk
