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Citywire Wealth Manager awards 2012: we reveal the winners

We’ve teamed up with Asset Risk Consultants to reward those wealth managers who have delivered strong performance over the last three years across four core strategies, sponsored by Carmignac, with gongs also given to the best large, medium and small-sized firms.  

Winning managers have been selected taking into account several complementary factors. Firstly, using data from Asset Risk Consultants, the risk-adjusted three-year performance is used to create a list of managers where performance is analysed in greater detail.

Then the performance over the last three discrete 12-month periods is examined along with the cumulative performance and Sharpe ratio.

Finally, the breadth of underlying portfolios incorporated within the submission is considered, with preference given to performance data that is deemed most representative of the average private client experience at each firm for clients following the designated model, fund or portfolio composite.

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Aggressive Portfolio winner - Signature

A number of high-conviction calls by Signature during the market uncertainty of the last three years have earned the firm the Aggressive gong.

The Bristol-based Rowan Dartington subsidiary, which was shortlisted for the award last year, benefited from the expertise of head of equity research Mark Sevier. His ideas guided the investment team, which includes James Gardner, Joe Dyer, Daniel Williamson and Ian Entwisle. The strategy is supported by the firm’s proprietary portfolio management system, which is designed to deliver greater consistency of returns.

Dyer credits the strength of the team. ‘This is very much the consequence of a team effort and that is reflecting both the significant breadth of knowledge and experience within the Signature team. This – along with the continuity of the structure of the team and a disciplined and rigorous investment approach – has helped us to deliver consistency in our return performance over both these periods.’

He attributes the strong performance to an overriding view that the global economy would struggle to recover from the financial crisis.

‘The performance can be mainly credited to our belief that the financial crisis and its consequences, not least the very high government indebtedness in much of the developed world, would result in a very tepid and uncertain global outlook,’ he says.

‘Consequently, we maintained a very disciplined approach at the individual investment level as well as in the wider positioning of portfolios,’ he explains.

Over the three years, the strategy benefited from low banking exposure and selective positioning in mining companies, while prospering from decent weightings towards the industrial, consumer goods and technology sectors. This was complemented by the tactical use of cash, which rose as high as 15% last summer.

Dyer sees no reason to alter this approach, even though central banks around the world are doing their best to restore economic confidence. He believes positioning the portfolios for a long recovery continues to be the best strategy.

‘Recent actions by central banks, notably the Federal Reserve, have helped to bring some stability to risk markets and for the time being have balanced out some of the concerns,’ he says.

‘Nevertheless, we continue to position our portfolios for a slow and drawn-out recovery process, which is likely to see ongoing challenges, by the continuing eurozone saga and towards the end of this year potentially by the US fiscal position.

In spite of these challenges, and as our performance figures bear out, we continue to believe our investment approach is the right one.’

Asset Risk Consultants verdict

‘This category is all about targeting maximum growth at the top end of the risk spectrum and some entrants fell below the prescribed risk range. Signature was top ranked versus its peers on both a risk-adjusted and absolute basis in a very close-run group.’

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Steady Growth Portfolio winner - Smith & Williamson Investment Management

Avoiding holes in the road rather than taking risks to capture upside has been the main driver behind the outperformance in Smith & Williamson’s steady growth portfolio, said director of investment management Chris Kenny.

‘If one pulls back the data that Asset Risk Consultants provides, you will see where we have really added value has been in not losing money during the downfalls,’ he explained.

‘The ability to protect capital during those market slumps and not seeing client portfolios fall has meant that we have not had to do heavy lifting. The compounding over the last three years, that is what has driven the returns.’

Despite the mixed batch of economic data over the past few months, indicating an unclear and unsteady path ahead for the UK, Kenny says his outlook was shifting from pessimism. In fact, he is becoming more inclined to believe markets can shrug off negativity on the fiscal side.

‘We worry a lot about the forces that are arising against investors and which offer a lot of risk, but we are used to this environment of perpetual low prices to a certain extent,’ he says. ‘One of the lessons we have learned is that investors can shrug off some of the bad news and focus on what’s ahead. It has never served us very well to try to fight the Fed or any local banks.’

The investment process combines a top-down and bottom-up approach, with Kenny pointing to ‘compelling’ valuations in European equity markets. Nevertheless, he agrees the signs of recession in markets across Europe – particularly Germany – remain a threat to recovery.

‘In the short term we are looking to see continued strength in risk assets and our EU team are particularly keen on the view that there will be lower volatility in European equities,’ he says. ‘But the upside is equity market valuations look quite compelling. Companies such as Volkswagen may be listed in Europe but they are great growth companies.’

Portfolios have had reasonable exposure to the US as Kenny says his stance on the market has been ‘fairly benign’.

‘We expect it to stay reasonably robust. In this new normal the US does have the advantage of being reasonably flexible and has put considerable resources to trying to drive further growth,’ he says. ‘On a macro view the country is doing reasonably well. While there are issues to be looked at, some of those things will be resolved after the Presidential election.’

Asset Risk Consultants verdict

‘We expect it to stay reasonably robust. In this new normal the US does have the advantage of being reasonably flexible and has put considerable resources to trying to drive further growth,’ he says. ‘On a macro view the country is doing reasonably well. While there are issues to be looked at, some of those things will be resolved after the Presidential election.’

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Balanced Portfolio winner - Cheviot Asset Management

Cheviot Asset Management has topped the Balanced Portfolio category thanks in part to its record in exploiting undervalued UK equities.

Cheviot chief investment officer Alan McIntosh says the past three years have largely been characterised by an underweight in fixed income and a sizeable overweight to quality equities, with strategic beta at the margin.

‘We have been active across all of our asset classes, and have successfully taken opportunities at the tactical level to add value,’ he says.

‘In equities, the balanced portfolio has [in particular] added value in undervalued UK equities in two of the past three years. We were in very defensive equity at the beginning of the period, and have this year added much more cyclicality.

‘[For instance], we added Britvic two months ago and that is now subject to a bid.

‘In the UK, GDP has been horrible, but unemployment has been going down. We talk to a lot of companies and they say things have not been as bad as they might appear.’

McIntosh points to international construction equipment rental business Ashtead as another recent addition to the company’s higher beta portfolio, as a way of accessing the US housing recovery.

While the momentum of the stocks helped to drive performance of the strategy, he notes that several positions have now hit their medium-term price targets and have been top sliced.

‘We think the market is a bit overbought in the short term. But we think we will continue to see a steady moderation in the economic environment, following [central bank] liquidity commitments.

‘We think Spain is close to requesting a bailout and the market will rally on the back of it.’

In fixed interest, the company entered the three year period with a high weighting towards inflation linked gilts, which were gradually recycled into conventional gilts.

This was, in turn, exited in favour of high-quality corporate debt at the beginning of 2011, which he notes has hurt performance, but has been the only prudent course of action because of negative real yields.

More recently, inflation-linked gilts have begun to look more interesting again as valuation has come off on outlook and concerns about the move from a link to the retail price index to the consumer price index, McIntosh said.

He adds that Cheviot is looking for greater transparency about how the move will affect long-term pricing trends before it commits client money to the asset class, however.

Asset Risk Consultants verdict

‘This category had the highest number of entrants and a diverse range of investment styles. Cheviot was a stand-out performer in this category, having exhibited consistent results over the period.’

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Cautious Portfolio winner - Kleinwort Benson

Kleinwort Benson’s chief investment officer, Mouhammed Choukeir, highlights positive views on government bonds and high quality credit, alongside calls on currency investments as key drivers of performance for its cautious portfolios.

‘By definition, the cautious category doesn’t want too much volatility, it wants preservation of capital,’ he says. ‘A lot of the time this will tilt the portfolio towards more of a fixed-income bias and that’s why our constructive view on government bonds has been an important factor.’

This stance on government bonds has served investors well over the past three years, although the recent rally has prompted a lightening up of this exposure in favour of corporate bonds, especially those at the higher-quality end of the market.

‘Another call has been to short the euro,’ he adds. ‘We’ve incorporated that in meaningful sizes, which illustrates that we’re negative on how the European crisis will pan out, and that we believe it will ultimately lead to a weaker euro in favour of a stronger dollar.’

Another currency call made earlier this year was to short the Australian dollar, which was viewed at the time as being overvalued by about 30% in relation to the US dollar. Shorting it was regarded as beneficial given it was seen as expensive at a time when a defensive stance was in favour.

‘We put it on, it worked for us and we sold it at a profit,’ explains Choukeir. ‘That is an example of how we identify something that’s expensive.’

Two key elements have driven the private bank’s investment process. First, seeking to strip out the emotional aspects by taking a disciplined approach to markets and data; and expressing the subsequent views by making high-conviction calls.

The company also evaluates prospects over the coming three to five years, while at the same time managing the various risks over the shorter term. This means that changing circumstances can have an influence, regardless of the company’s medium term outlook.

Looking to the future, Choukeir believes the biggest risk facing the cautious sector is a potential rise in interest rates over the next five years. While central banks have made a commitment to keep rates lower for longer, the elephant in the room is the prospect of inflation.

‘If inflation becomes an issue and central banks have to raise rates, cautious investors that are heavily biased to fixed income are likely to face losses,’ he says. ‘If our assessment points towards that we will start to further reduce our interest rate risk and exposure to government bonds.’

Asset Risk Consultants verdict

‘A number of entrants fell foul of the risk parameters for the Cautious category, and were disqualified on the basis of being too volatile. This is perhaps because of the recent increase in bond volatility. Kleinwort Benson was inside the risk range and generated one of the highest levels of return over the period.’

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Small Firm winner - Signature

Bristol-based Signature has not only received accolades this year for its investment performance, but has also scooped our award for the best overall small firm.

Headed by managing director Andrew Morris, the Rowan Dartington specialist discretionary subsidiary, which was shortlisted for the same award in 2011, was formed in 1990 and rebranded to Signature in 2009.

It attributes its success to a number of factors, driven by a ‘team effort with significant breadth of knowledge and experience’. It describes its investment approach as ‘disciplined and rigorous’ at both the individual level and the wider positioning of portfolios.

The investment team’s strong performance over the past three years was structured around the simple philosophy that following the financial crisis the global outlook would be ‘tepid’. With this in mind the firm combined a topdown overlay with bottom-up fundamentals to position its bespoke range of portfolios, which hold aggregated assets of £200 million and are based around five risk profiles.

Investment manager James Gardner believes Signature’s proprietary portfolio management system is one of the major reasons it has the edge. The system was phased in more than three years ago but is now used extensively across client portfolios. It enables the firm to centrally manage client assets, leading to greater consistency of returns across portfolios and ensures scalability of the service.

‘We were offered other research systems but they didn’t do what we wanted them to, so we built our own system,’ Gardner says. ‘It is more flexible in terms of allocation towards securities and at the sector level.’

He also pays credit to his investment team’s ‘high conviction’, which means they do not restrict themselves by following benchmarks. At the same time, risk is closely monitored through the firm’s ‘four-dimensional’ process, which is designed to select the most appropriate investments to meet client objectives.

Signature significantly enhanced its research team last year, with the double hire of chief investment officer Guy Stephens and head of collective research Tim Cockerill, who both joined from Ashcourt Rowan in September 2011. They formed a formidable partnership alongside head of equity research Mark Sevier. The investment team also includes senior fund manager Joe Dyer and investment managers Daniel Williamson and Ian Entwisle.

Signature introduced new investment services to complement its existing offering on the back of the hires, including a Collective Portfolio Service and a Hybrid Portfolio Service. Stephens chairs the weekly investment committee meeting, while Cockerill chairs a similar meeting on collectives. The meetings are subsequently married to agree core equity and collective recommendations.

‘We had the opportunity to add real value to the investment process by bringing Guy and Tim on board and we took it,’ business director Trevor Cheal explains.

Asset Risk Consultants verdict

‘Signature provided a range of products that were consistently in the running for the respective performance awards, one of which the firm won.’

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Medium Firm winner - Cheviot Asset Management

To add to its win in the hard-fought and competitive Balanced portfolio category, Cheviot can also claim the medal for best overall performance in the Medium Firm category.

Chief investment officer Alan McIntosh says the relatively horizontal reporting lines within the company were a key ingredient behind driving performance, both feeding information to the centre and effectively communicating ideas back to the investment principals.

‘I am heavily involved in the direct equity side, while [investment director] William Buckhurst heads our funds research, but we more or less sit alongside one another,’ he says.

‘[Portfolio change] implementation can be done very quickly. All our [asset allocation] committee members are also investment managers, so it is more or less instantaneous.

‘Having the investment managers as part of that process means that there is a particular consistency all the way through the process.’

Operating solely from its London office for much of the company’s history, in 2011 the company opened its first regional outpost in Liverpool, recruiting a team of managers from Deutsche Bank Private Wealth Management.

McIntosh says that finding a group of managers with a comfortable working dynamic, who would nonetheless be comfortable slotting into the company culture and processes had been a crucial component of the decision.

Profiled by Citywire Wealth Manager in 2010, Cheviot co-founder Michael Kerr-Dineen emphasised that building a group of people with common purpose had been a critical part of his break from former employer UBS.

‘When we launched we set out our stall and it is not our intention to diversify away from like-minded people,’ he said.

‘We will not take this business downmarket. If you set up a partnership you want to make sure you do it with people you like. You don’t want to start with rotten apples. I want to keep Cheviot a class act.’

The company launched in 2006 after Kerr-Dineen convinced about 80 colleagues to walk out of UBS Wealth Management, launching the company alongside Sir George Mathewson, the former chairman and chief executive of the Royal Bank of Scotland, who serves as chairman at Cheviot.

Kerr-Dineen added that the independent partnership structure had been a key component of the company’s success, pointing key staff in the same direction and aligning them with the interests of their clients.

‘There are no conflicts of interest as we are all partners. There are no promises that can’t be met here and we don’t waste time. This is a front office-driven system.’

Assets under management at the company are currently approaching £4 billion, having grown between 10% and 15% on an organic annualised basis since launch. In fact, consultants Compeer lists Cheviot as one of the fastest organic growing businesses on the market.

Asset Risk Consultants verdict

‘This was a close run category, in which Cheviot Asset Management stood out as the only medium-sized firm to win a performance award this year.’

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Large Firm winner - Smith & Williamson Investment Management

Smith & Williamson Investment Management has won this award for a third consecutive year. Director of investment management Chris Kenny says the firm’s investment process stands out because every member of the investment committee is a private client manager with day-to-day experience of managing money, rather than being a desk-bound sector specialist.

‘What distinguishes us is that there is no chief investment officer telling us what to like,’ he says.

‘The investment committee is made up of a group of people, each of whom are private client managers who have direct experience of private clients. We don’t just want someone that specialises in European equities saying “let’s buy this” because that is their area of expertise. We really want to have some generalists that are at the coalface and know what private clients want.’

The firm has more than £12 billion in assets under management and advice, and operates from seven offices across England, Scotland and Ireland. The investment process combines a top-down macro view with bottom-up stock selection, while different asset classes are examined by the investment committee on a rolling basis. ‘We gather all the primary research from all the various banks and then pick the stocks that we prefer. That does involve quite a lot of face-to-face meetings. We do about 1,000 meetings with companies and fund managers a year,’ Kenny says.

‘We fundamentally like companies and markets where we can understand the risks. Where we don’t know what the risks are, we don’t touch it.’

‘We really only focus on liquid investments. The ability to change one’s mind when it goes wrong is utterly vital, particularly for private clients as most of their money is tied up in illiquid assets, such as their homes.’

Smith & Williamson’s best overall large firm award sits alongside its win in the Steady Growth Category, while it has been shortlisted for awards in the Balanced and Aggressive Portfolio sector. Performance in the balanced portfolios has been driven by weightings to inflation-linked bonds, gold bullion and listed infrastructure, Kenny says, while fixed income has provided decent returns.

‘We have been keen on fixed income assets for longer than many of our competitors, and have been keen on maintaining exposure to inflation-linked bonds. Our weighting in alternatives has grown markedly, and we have had a consistent allocation to gold bullion. We like listed infrastructure funds, where they could manage the liquidity that we wanted.’

He said aggressive portfolios have benefited from managers being unafraid to take on risk as markets reacted to fiscal intervention.

Asset Risk Consultants verdict

‘Smith & Williamson was shortlisted for a number of awards, having displayed consistent performance. It was the consistency of the firm’s performance that put it top of this group.’

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