This article is intended for professional Advisers only
Your clients share that desire to get better performance for lower fees, particularly in this period of great uncertainty as the market cycle runs into injury time and Black Swan events create huge volatility.
However, the need to square your clients’ desire for high-quality investment management with the negative impact that fees can have on their returns, can sometimes seem perplexing.
In an era of robo-advice, passive investing and ever greater regulation (thank you, MIFID II) you could be forgiven for thinking that generic market-tracking ETFs are all you can get at the low end of the fee spectrum. In which case, we’ll be happy to surprise you with the value of Investec’s recently relaunched, active Managed Portfolio Service, at one of the most competitive fees on the market.
As the legendary investor Warren Buffet put it: “Price is what you pay, but value is what you get”. That clarity of thought lies at the heart of our decision to relaunch our premium Managed Portfolio Strategies to the adviser market.
Record low rates
We’re offering a set of actively managed MPS strategies, comprising of five clearly defined risk profiles from defensive to growth, at an AMC of just 0.2% + VAT. That’s a fee that would be considered low even by passive management standards and one which clearly positions the Investec MPS as the best value proposition among our peers. Indeed, it is one of the lowest fees for actively managed MPS, period.
Just to put that in context, the average AMC for MPS accessed via platforms is 0.3% and Which? recently calculated that the typical range of AMC for overall actively managed funds was between 0.75% and 1.25%, while investment trust charges are generally in a range between 0.8% and 1.8%.
What’s more, you will be able to choose the most appropriate MPS strategy for your clients and access it easily since our MPS is now available on more leading platforms.
While the debate about active versus passive management will continue to rage on, we believe strongly in the so-called bionic approach to investment management which marries the best of human and machine intelligence. We make use of all the tools – MPS provides automated portfolio suitability monitoring, for example – but ultimately, we trust the insight and common sense of our highly experienced investment team over a purely automated process that reacts unthinkingly to triggers.
Active has a current advantage
In periods of market turbulence, research shows that active funds tend to outperform passive funds – and with the disruption caused by the COVID-19 pandemic this year, we’re experiencing rarely seen levels of volatility that look set to last for some time. UK-based active managers therefore have the opportunity to outperform passive equity funds if and when the markets tumble.
We’ve already seen this in action. On 28 February this year, markets globally reported their largest one-week decline since the 2008 financial crisis. According to data from fund research firm FE Fund Info, 89% of active UK funds outperformed in the period from February 20 to March 13. We will, almost undoubtedly, see further similar opportunities for active managers to outperform this year and next, as many economies around the world enter recession.
Of course, the successful active managing of a fund is a rare skill and we readily acknowledge that it is usually only a minority of active managers who outperform. That’s why the most important task for our research team is doing the hard work of identifying those active funds that will beat the benchmark. Reassuringly, a perusal of the key holdings in our clients’ portfolios, and their returns after costs, does strongly suggest that our active management approach has worked over many years.
Doubling down on portfolio performance
With such a strategy of picking winners, two factors loom very large in calibrating for success: the strength, depth and experience of the research team; and the quality and extent of the fund universe from which they are able to select. More, better analysts researching more, better funds is an equation that most quants would respect.
It could be argued that the calibre of Investec’s research team gives us an unfair competitive advantage. Not only do we have one of the largest and most experienced teams of research specialists in the UK, but we have gone a step further and created a dedicated MPS investment team to manage MPS portfolios specifically and exclusively.
This reflects both our commitment to, and our faith in, this new service for advisers.
That strength in depth allows us to monitor our MPS constantly. We do not believe in constant tinkering but when a change is required, we have the capacity and expertise to react very quickly.
Contrast that with the more laissez-faire approach taken by the majority of passive MPS solutions, which rarely look at portfolio performance. Even those portfolios which advisers run themselves on behalf of clients will usually only be reviewed on a six-monthly basis at best.
In our opinion, active portfolio management is optimised when your view is through the front windscreen rather than the rear-view mirror.
The expanding research universe
If research acumen and highly competitive fees are two of our big differentiators in the market, then the third is clearly the unrivalled size and scope of our research list compared to those of our competitors.
Size does matter and we happily boast that our research list – comprising some 350 externally managed funds from 120 companies – is substantially longer than any of our peers. That means we are not overly concentrated in, or dependent on, any one fund group.
Again, we’re happy to back up our claims with hard, independent third-party research. The definitive CityWire Wealth Manager Top 100 survey revealed that our coverage of actively managed investment funds and closed-end trusts was almost double that of our nearest competitor which, in turn, was well ahead of the rest of the pack.
It’s not just about quantity, of course: We pay careful attention to the quality control, too. Strict criteria are applied in positively vetting the funds that we admit to the list. It’s fair to say that certain star fund managers who have blown up in recent months never made it onto the list even when they were riding high. They didn’t pass our stress tests. As we say, in active portfolio management and MPS, it’s better to be wise before the event.
We are also careful to embed ESG factors into our fund selection process. Through face-to-face meetings with fund managers, we can establish an in-depth understanding of how these principles are integrated into their funds, in a way that smaller companies cannot. This is supported by additional research, primarily from Sustainalytics.
If you see the appeal for your clients in an effective, actively managed MPS backed by a large and dedicated investment team, an unrivalled fund list and the lowest fee structure in the industry, then please do get in touch.
You’ll have the security of knowing your clients’ portfolios are in the safe, experienced hands of a research team that enjoys the discipline of a robust investment process overseen by Investec’s Global Investment Strategy Committee. With all this value at an AMC of just 0.2% + VAT, this hidden proposition may not stay hidden for too much longer.
*Source: FE Funds Info Research
**Source: CityWire Wealth Management, Top 100 Survey