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MPS lowdown: Whitechurch slashes fees with passives

MPS lowdown: Whitechurch slashes fees with passives

Whitechurch Securities has slashed the annual management fees on its Dynamic model portfolio service (MPS) to as low as 0.1% for direct clients.

The Bristol-based firm has also lowered the fee for customers who hold the portfolios through an external platform to 0.2%. It had previously charged 0.35% across the board.

To keep fees low, the MPS predominantly invests in passives. But Whitechurch can hold up to 20% in active funds.

Managing director Gavin Haynes (pictured) said this is for advisers wanting a low-cost solution. But he added Whitechurch does not want to rely purely on passive investment.

‘There are increasingly onerous costs and regulatory requirements involved with running advisory portfolios in a Mifid II environment,’ he said. ‘As such, I believe the marketplace for risk-rated model DFM portfolios will continue to grow, particularly for smaller investments.’

He added the Dynamic portfolios can be an attractive alternative to multi-manager funds. This is because they are priced at a fraction of the cost of many popular funds.

Commenting on the most recent asset allocation change, Haynes said: ‘We’ve continued to add a little to UK commercial property as a diversifier. We exited this area around the time of the EU referendum, but reintroduced it to the portfolio in the summer.’

Quick boost

Haynes said property also offers an attractive level of income and has modest capital growth potential. This position has paid off: Janus Henderson UK Property was the portfolio’s best performer in the first quarter, up 1.7%.

In recent weeks, Haynes has started to build exposure to US Treasuries. ‘As developed market yields get towards 3%, they start to look attractive. And the US is now probably the only market where government bonds yield much more than the equity market.’

Haynes noted Treasuries also offer a degree of protection, if investors go into risk-off mode. This exposure also counterbalances the portfolios’ underweight to US equities.

‘Because of valuation concerns, we’re fairly underweight US equities,’ he said. ‘So those Treasuries offer some dollar exposure, which helps diversification.’

In the short term, Haynes said, tax cuts could provide what he calls a ‘sugar rush’ for the economy. ‘However, we generally feel valuations look a bit stretched. Our contrarian approach has seen us focus more on bringing a bit back to the UK.’

Home optimism

Describing the UK as ‘unloved’, he has built exposure to UK equities. This is partly through equity income funds. Despite Brexit uncertainties, Haynes noted more than 80% of earnings of FTSE 100 companies comes from overseas, with firms benefiting from sterling weakness. But Haynes said more domestically-focused smaller and medium-sized companies could prosper if Brexit goes well.

Despite his optimism about the UK economy, the worst-performing holding in the fund in the last quarter was Vanguard FTSE UK Equity Income Index, which fell 6.7%. To this, Haynes said: ‘We acknowledge the political risks. But we believe a very gloomy scenario is currently priced into the UK stock market. This could represent a good contrarian opportunity.’

He believed UK equities are currently at their most unloved since the financial crisis. ‘Global investors seem to be shunning UK equity markets. We don’t think there’s a good reason for that.’

Haynes noted the Vanguard FTSE UK Equity Income Index fund is focused on blue chips offering an attractive yield. And he thinks, on a relative basis, the market offers value.

Over five years, the Dynamic Balanced portfolio is up 32.7%. By contrast, the ARC £ Balanced Asset PCI benchmark rose just 22.5%.

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