Since becoming part of Old Mutual in the first quarter of this year following regulatory approval, UK discretionary management group Quilter Cheviot has started building on its international presence.
The Jersey operation of Quilter Cheviot already has £1.3bn of assets, while its business as a whole manages around £17.5bn which now sits alongside the £100bn of private client assets of Old Mutual Wealth.
Tim Childe, head of international and in charge of the Jersey office, says its acquired status provides a useful backdrop for the business strategy, with the benefit of a parent company that is “focused on us preserving our culture and our investment process”.
Up close and personal
One reason why Old Mutual was attracted to the business was that it is a bespoke investment manager that “very much caters for the higher end of client assets, while they [Old Mutual] offer significant opportunities for the mass affluent”.
The proposition involves what he describes as a highly personalised multi-currency, segregated portfolio approach, where the investment manager also acts as the client relationship manager.
“It is a face-to-face bespoke solution rather than through their platform, or now through their Intrinsic IFA network. That makes for quite a powerful integrated solution. We are probably one of only three or four operators in the market that now offer this.”
The open-architecture, multi-asset class approach starts with an independent team of research analysts who formulate their own views on equity sectors, and a large team of collective fund analysts.
“We have a significant list of direct equity stocks covering UK, US and Europe, from which the investment managers can draw their selection, although we have a model portfolio framework to work within.”
There is one set of model strategies in the UK, and a distinctly different set of strategies for the offshore market catering for the international client base who typically will not have any tax constraints.
“They might be sterling-based but they are not UK-centric, so they have very international aspirations, and they really look to investment managers here to eke out the best opportunities wherever they may fall globally.”
Equity expertise
The strategies they employ have always had quite a significant exposure to continental Europe and the US through direct equities, which adds value in terms of diversification of risk and additional growth opportunities and returns for portfolios.
This enables them to make the types of conviction calls that are difficult to do when purely running a portfolio of funds.
“We use funds for the areas of Far East, emerging markets and the specialist sectors, but where we think we can create real value is leveraging off the expertise of our research analysts and our asset allocation committee,” he says.
A “highly qualified” team of analysts is headed up by the chief investment strategist and chief investment officer, who conduct monthly committee meetings covering stock selection, international stock selection, fund selection and asset allocation.
The practitioner involvement here is vital, says Childe.
“Investment managers will only buy into the process if they are part of it, they believe in it and it is fit for purpose for their clients, and that is how we have always operated.”
There are also monthly Jersey investment meetings with the investment managers and analysts, where strategic decisions are made in terms of adjusting the model templates.
“We are always actively positioning the portfolios, mindful of the framework we are operating within in terms of the suitability of the portfolio to the client’s needs and risks.”
Room to manoeuvre
As active managers they readily take profits, seek opportunities and maintain awareness of extreme currency movements. For example, in the past 12 months the strategy has correctly positioned in the right hedge classes of various funds to counter weakness of the yen and euro.
Conversely, tactically overweight positions in the US and capitalising on the strong dollar have been key strategies for some time.
Overweight exposure to the technology and healthcare sectors, while at the same being underweight in the mining and resources sectors, has also paid off over the last 12 months.
“We always like to give all the investment managers room to operate, so they are not slavishly ticking boxes. They have that tactical manoeuvrability to drip-feed monies in and take a view on certain model weights versus actual portfolio weights for short periods of time.
“Needless to say, with the mandates we have won during the past few weeks and months, we have been taking a very drip-feed approach, particularly as we enter into the summer months, which are obviously famous for volatility in terms of unwelcome surprises.”
Pulling back to a high strategic level, Quilter Cheviot favours equities over bonds, and expects bond yields to rise moderately from here.
In terms of regional preferences within equity markets, Childe favours areas where quantitative easing is still very much under way, notably the eurozone and Japan.
“Equity markets are considered fair value now rather than cheap but, that said, we still think they can re-rate in a low-inflation, low-interest rate environment, and from here on in we would expect equity mark-ets to close higher year-end than current levels.”
What is key really in the US, he says, is that it is going to be the first major economy to adjust its interest rate policy, and he wants to see how corporate earnings hold up in the second half of this year.
Although Greece is very much on individuals’ worry pads at the moment, of greater concern from a global economic perspective is when the Federal Reserve finally adjusts interest rate policy, he says.
“The quantitative easing measures that have been brought to bear have been unprecedented, which is of far greater global significance in the long-term scheme of things.”
So what about alternative investments and anything to counter some of the trends in the main markets?
Childe says the range of alternative vehicles and areas they use include hedge funds, private equity, infrastructure and property.
As to whether exposure to alternatives has increased during the past year, it all depends on the underlying investment strategy.
“Some clients quite like an above-weight alternative position to dampen down some volatility and reduce some of that correlation between equities and bonds.”
