Seasoned investment directors Nigel Cuming and Justin Oliver are adjusting to the new name of the company they work for, following the formal rebranding of Collins Stewart Wealth Management to Canaccord Genuity Wealth Management earlier this year.
But for them, the acquisition by the Canadian parent company Canaccord Financial has not impacted on the investment processes and asset allocation approach in the way an outside observer might expect.
Cuming, chief investment officer for Canaccord Genuity Wealth Management, is well versed in name changes having started in the finance industry in 1975.
“I have not moved job in the 16 years since I joined Matheson in 1997. The names may have changed but the number of people that have been around for the entire period is quite high and the investment process has been relatively consistent albeit with the continuous enhancements that you could expect as the industry gets more technical.”
Oliver, investment director at Canaccord Genuity Wealth Management, started his career in 1994 with Kleinwort Benson in Guernsey, and then after a brief six-month stint at Generali, he joined Collins Stewart in December 2000 where he has been ever since.
Canaccord Genuity Wealth Management now includes a client-facing UK office in London, as well as an offshore-focused operation of some 168 people including front office staff as well as those who oversee corporate functions such as compliance, IT and legal matters.
Client-facing, internationally focused offices are located in Guernsey, Jersey, the Isle of Man and Geneva, and form part of the parent group’s assets under management and administration of around £16.8bn.
Sticking to principles
Cuming says he believes one of the reasons that Canaccord purchased Collins Stewart was that it liked its wealth management offering and the way the investment process was organised.
“In terms of changes to our investment process there has been none whatsoever, there has been total continuity. Rather than it being a big owner imposing some methodology on the firm that has been purchased, it would seem more likely that Canaccord will start using some of our practices in their domestic market and indeed elsewhere around the world.”
One example of this is Canaccord’s interest in seeing how it can utilise the Quest system, a proprietary stock research tool, to analyse Canadian equities.
“Quest gives a defined methodology in terms of equity selection – they very much like the way it operates and they are looking to use Quest to put together lists of approved and recommended Canadian stocks.”
Cuming emphasises that the investment philosophy focuses on capital preservation and points to this year’s approach of maintaining a modest bond and equity underweight position.
“The rally from the March 2009 lows had got ahead of itself. We were feeling a little bit uncomfortable until quite recently, looking at the UK market approaching 16% up on the year. But because we fundamentally didn’t trust the rally we weren’t going to abandon our principles.”
Theory of evolution
Another key feature of the investment process which he is keen on is its constant evolution.
“Like a lot of investment managers, we found our participation in the market setback in 2008 humbling and we’ve been working extremely hard ever since to embed risk and risk analysis more centrally into our investment processes.
“This translates into managing portfolios very efficiently in line with clients’ stated risk profiles in order to maximise risk-adjusted returns.
“So our mindset is that it is better to avoid the bad periods in markets rather than trying to chase bull markets. We would aim to capture a decent percentage of the rising market, but because of our inherent conservatism, we think we’ll offer a much better prospect of capital preservation when times get slightly harder.”
Cuming is worried about the lack of a significant sizeable setback in the US. “I’ve been worried all year about markets going higher on relatively low volume. The technical space of the market has worried me hence our cautious stance.”
Although underweight in equities, Cuming likes the US market, which appears to be leading the Western world in terms of economic growth and has proved resilient in the face of budget sequestration and other tightening measures.
By contrast, he has found it easy to underweight Europe though he says one of the next big asset calls is whether to increase exposure there.
While also underweight in Asia for a while, this year he has used a market setback as an opportunity to increase exposure to Asia and the US.
Having missed the rally in Japan, he says the balance of probabilities is that it will make “good progress and owning Japanese equities on a hedged basis is something we might introduce if we can find a decent entry point in the next month or so,” says Cuming.
“We were finding last year that during a two hour asset allocation meeting, we were spending an hour and a half of it discussing Japan for our benchmark which is all of 3%.”
Having a positive long-term view of equities, his mindset is more to be buying on dips than perhaps it was two or three months ago.
“I’m looking at emerging market stocks – they are now trading at substantial discounts to developed equity markets and if we can again finess a position into China at some stage, I think that will be on the agenda.”
Opportunity knocks
In the search for strategies to reduce risk in portfolios, government bonds have been used by Canaccord “quite successfully” as a diversifier of equity market risk.
“There are opportunities in credit but we are keeping duration quite short. We’re quite conservative in the market. In my working career, bond yields have come down in the UK from in excess of 20% to 1.6%. There is an ‘end of the game’ feeling in the government bond markets, the 30-year bond market, but the bull bond market is now more or less history.”
An example of a US dollar portfolio with a medium-risk mandate is shown in the chart (below), which Oliver says has a high weighting to dollar bonds and US equities “as much to control currency risk as anything else”.
Increasingly the focus has been on particular sectors or themes within markets, and Oliver gives two specific examples.
“We were early to spot the potential in healthcare stocks, for example. We gave exposure to Polar Capital Healthcare funds 18 months ago and have done extremely well out of that. Equity markets have been driven by these defensive areas which almost come about from investors trying to find bond proxies in the stock market.
He adds that healthcare weighting was reduced recently in order to take profits and reinvest in other more cyclical areas which were becoming more attractive. The core funds listed represent some of the themes.
Also within the sector specific weighting there is exposure to technology. “We are trying to focus on areas of relative value. Our analysis has shown that technology stocks are trading at multi-year relative lows at a time when many of these sub-sectors have been performing well. In the US, most of the sub-sectors of technology have outpaced the market in terms of their sales and earnings growth,” Oliver says.
The expat portfolio shown (see chart) is the Canaccord Genuity Global Opportunity Fund, which is constructed of conviction positions around five to seven key themes. The ideas are driven by top-down asset allocation, bottom-up fund selection, sector/thematic opportunities and contrarian thinking.
This fund has always had a thematic bias, which Oliver says sits well with the world of expats, who “by definition tend to have a higher risk tolerance”.
“Often they have a narrower timescale to maximise their savings and investments. We found this portfolio resonates well with the expat community. As an investment house it is good when you can explain a story rather than just being able to say we bought that because the PE is 12 against the long-term average of 15.”
Oliver adds: “We like to have an unfettered approach to our investments. This portfolio is our best ideas for making money.”
Cuming argues that historically expats made the mistake of being too UK-centric in their positioning.
“We had the classic example years ago of people living in Spain but still being primarily invested in UK gilts and trying to fund a Spanish lifestyle from a UK-based investment. What we like about the global opportunity fund is that it is global.
“At the back of investment managers’ minds should be the measured decline of the West relative to emerging markets in Asia. And I think portfolios do have to become genuinely more global and try and get into general themes that are going to make you big money over the longer term. The balance of probability is that sterling and other western currencies will lose value over the longer term to the rest of the world.”
