As an active fund manager, how are you responding to rising demand for passives?
There are some markets where it is exceedingly difficult to make a consistent excess return. The US is a good example.
If, like Marlborough, you have a small-cap focus, the patience to hold stocks and you are looking to the correct benchmark, you can say, hand on heart, to clients, “That’s what you are paying for”.
I don’t have an issue with passives and, as an investor, I own them. This zealotry about passive-only or active-only doesn’t make sense, though I can understand the guilt that a closet tracker might feel.
Marlborough’s raison d’être is about providing alpha. For some people, it is a tough position to hold and to be upfront.
You need to be able to demonstrate a consistency of approach, which is easier when you have a 20-year track record, rather than saying, “We’ve had a pretty good bull run since 2008, so haven’t we done well?”.
What is the split between the UK and international business in terms of assets?
The international business is very much the junior partner. During the past 12 months, the UK funds saw a 25% increase, from £4.5bn to £5.6bn. For offshore business, which is relatively young, it went from around £50m to almost £180m.
What is your strategy now the Brexit negotiations are under way?
The issue has been a wider one for the group. What is the potential benefit of the business being based elsewhere, in Dublin, for example? The approach we’ve taken is to have our Guernsey funds also listed in Dublin. It gives us the potential to have Dublin as a base. We don’t have any people there at the moment but it’s an option. It means the fund might appeal to organisations that are less friendly towards Guernsey.
Then it’s a leap to say, “What do you do about the rest of the business?”. That will be a purely commercial decision. It’s not cheap to up sticks and walk away. I don’t see a great advantage in doing that at the moment.
A number of the large groups, who have a greater stake in the game at the moment, have made that decision. But Marlborough is less sensitive to potential negative outcomes in terms of how the Brexit negotiations go than an M&G or a JP Morgan.
What has Marlborough done to help advisers with their investment propositions?
We provide an online risk profiler that advisers can use with clients. Given how those individual funds are put together, you can have a mixture from our range to provide one of four risk levels: defensive, cautious, balanced or adventurous.
One approach that has been adopted by some asset managers is to ‘x-ray’ [Marlborough’s comprehensive portfolio analysis service] their portfolio for free. But a number of businesses that have used that service now find themselves with funds in their portfolios, almost as a thank you for helping them That’s fine, but is not necessarily the basis for a long-term relationship.
You have to ask whether you would take a stake in these companies if you were able, and treat them as if they were part of the Marlborough group.
Marlborough has a discretionary fund management service – available in the UK and internationally – which puts our funds together in the way advisers want. It is a fettered arrangement as unfettered fund managers, or multi-asset managers, have had difficulty demonstrating they’ve added any value for that extra 25 or 30 basis points.
If you have a number of funds that are doing reasonably well, that’s fine, but many unfettered managers want to cover every base, and have ranges with 100 funds in them.
With that approach there just isn’t enough exceptional performance to go around. At Marlborough, we are fortunate enough to be in the position where we have no need to go out and look elsewhere.
