As a US taxpayer now resident in the UK, Soler is well versed from a personal perspective on the many compliance requirements of jurisdictions.
“As a US citizen you quickly realise once you’re of an age where you’re actually earning and getting paid, your obligations every year are quite serious and costly. So whether I live in London or Singapore or Germany, I still have to file with the US authorities every year by a certain date. I have to retain an accountant and all of that focuses the mind on what it means to be compliant at a very basic level.”
The international flavour to his background started early as he was born to a Maltese father and British mother, and after being born in England he grew up in Mid-West America, becoming a naturalised US citizen at age 18.
This has clearly infused his time in the investment management industry from when he joined Mercury Asset Management in 1998, just before it was taken over by Merrill Lynch. He moved to Sarasin & Partners to become client director in 2013, just before the ownership changed again.
“My focus has been largely on international families, looking after their investment management needs and over the course of the past 10 years increasingly those families that have a US connection.”
Staying power
Sarasin & Partners has around $23bn of assets under management with 80 of the 208 employees who are investment professionals, either helping construct portfolios, analysts looking at companies or stocks and bonds or economists.
“It’s got credible size, not too big, not too small but very importantly it’s structured as a partnership, an LLP. Partnership allows us to have individuals here with long length of service, a long track record of investment which gives clients and trustees a very comfortable feeling that the person who is going to construct the portfolio and manage it, is going to be around for quite some time.”
The biggest shareholder is Swiss headquartered international private banking group J. Safra Sarasin, and Soler is based in its London City office overlooking St Paul’s Cathedral.
Wholly-owned subsidiary Sarasin Asset Management is registered as an investment adviser with the US Securities & Exchange Commission, regulated by the UK’s FCA and has for over 10 years looked after US-connected clients.
“At its inception nobody could be aware of actually how interesting and important that would become,” he says.
An active approach
So what does the asset allocation look like for the typical portfolio of an expat US family?
It starts off no different from other types of client, with an active asset allocation approach which is about analysing not just the world markets but also the macro-economic environment and taking a view on how we want to allocate assets.
A policy committee chaired by Sarasin & Partners chief investment officer and managing partner Guy Monson comprises economists, equity analysts, fixed income analysts and derivatives specialists.
“That meets every six weeks but with how fluid the market is at the moment, it’s been having quite a few ad hoc meetings. For example, we’ve recently taken a decision to start adding to equities and that’s on the back of the central banks adding liquidity in Japan and Europe also making the right sorts of noises, despite the US backing away from quantitative easing.”
In terms of long-term strategic allocations for individual clients, the higher end of the risk spectrum has 100% in global equities.
For more risk-averse clients who want to just keep up with inflation plus, say, 1%, there might be 20% in equities, again global equities, with the rest in fixed income, cash and a few alternatives.
For those seeking a target return of the Retail Price Index (or the US equivalent Consumer Price Index) plus 4%, Soler says the portfolio needs to have a long-term allocation to equities of around 60%, 30% in fixed income and 10% in cash (see table on page 46).
It draws its longer views from a weighty and well-regarded Compendium of Investment, first written in 1997 and published biennially, which sets out in some detail the history of key asset classes, providing analysis and reference material to put the current investment environment in a long-term context.
He adds the portfolio’s exposure to equities is currently heading towards 70% “on the back of economic fundamentals looking encouraging, with Q3 earnings looking fairly encouraging and the liquidity picture, with new movements from Japan but also the right sort of noises coming from the ECB.”
All types of clients will have largely the same sort of tilt towards asset classes, equities, bonds, cash and certain asset allocation biases, he says, whether that is for a charity, a large institution, or a family, US or otherwise.
The power of five
For tax-efficiency reasons, funds are not used to populate the portfolio as much for a US client as a UK one. Instead, Americans will get exposure to between 35 and 45 individual stocks for the equity assets.
“So it’s quite a concentrated private-client list of stocks built from our core, thematic equity process, built from the same buy-list which will also go to inform our flagship core, thematic fund.”
This thematic investment approach is built around five core themes which is at the heart of Sarasin’s distinctive process, centred on what would tend to drive revenues for companies over the long term in terms of such issues as demographic change, government policy change, middle class emerging market growth, and changes to emission standards. The companies they target are not just those that have these long-term trends.
“It might not be a well-run company still, even if they’re the best placed for emerging market population growth or demographic change in the west. That’s not enough. We’ve got to also look at the corporate characteristics that we think will unlock value in that company.”
The five themes that Sarasin looks at (see box below) leads to selection of the stocks, for example in the case of corporate restructuring it picks Nokia as having a different business model going forward, after selling its mobile phone business to Microsoft.
“We have a team of circa 10 analysts now, who go around, do the fundamental work, to look at the different companies, to look at corporate restructuring stories globally.”
They also spend a lot of time using Sarasin’s own discounted cash flow models, looking at two, three, and five years ahead to work out what they think the company’s worth relative to what it’s priced at today and the extent of any upside.
For Americans, Sarasin is investing not only in direct stocks but also direct bonds because that’s tax-efficient for them too.
“We’re thinking about how long we’re holding those investments because for an American it makes sense to hold for 12 months if you’ve got a capital gain.”
As for geographical spread, the portfolio is truly global, and given that the US represents a very large part of the global marketplace, around 45%, the chosen stock picks do include a decent number of US companies.
Global vision
“We feel very strongly that the world has moved on. Where a company’s listed now, it really has no bearing on the story behind that company. It’s about these themes. For example, Kimberly Clark, its future growth is all about its emerging market. Colgate, you would say the same. Kansas City Southern, it’s what they’re doing in Mexico.”
Soler says 10 or 20 years ago an American living in New York might have just wanted 100% US-listed stocks, and equally a UK family might have sought only FTSE All-Share stocks.
“You look at the underperformance of the UK market this year to the US. It speaks to why it’s important to have a globally diversified portfolio.
“So we do a lot to look beyond listings and geographies. We think about themes. It makes us different and it gives us an edge.”
