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Four wealth managers on the role of ETFs

As exchange traded funds become an increasingly important cog in the investment wheel, we ask four wealth managers what role they play in their asset allocation.

James Menzies, investment director & head of multi asset, Greystone Wealth Management

‘We strive to optimise risk-adjusted returns for all client portfolios. Core fund holdings are alpha seeking managers with a high active share. We use ETFs at the periphery.

‘Within the defensively positioned MGTS Greystone Conservative Managed fund – a short dated gilt ETF helps us meet our credit quality obligations in a cost efficient manner.

‘Investment in a passive US dollar global sovereign debt fund has benefited unit holders in the MGTS Greystone Balanced Managed fund, as yields fell and the dollar rose.

‘We hold a US large cap passive fund within MGTS Greystone Global Growth. North America is a notoriously difficult market to outperform. This tracker offers low cost exposure to more than three thousand US-listed businesses.

‘However, our default investment philosophy is to seek out, and invest in, the world’s very best active managers.’ 

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James Menzies, investment director & head of multi asset, Greystone Wealth Management

‘We strive to optimise risk-adjusted returns for all client portfolios. Core fund holdings are alpha seeking managers with a high active share. We use ETFs at the periphery.

‘Within the defensively positioned MGTS Greystone Conservative Managed fund – a short dated gilt ETF helps us meet our credit quality obligations in a cost efficient manner.

‘Investment in a passive US dollar global sovereign debt fund has benefited unit holders in the MGTS Greystone Balanced Managed fund, as yields fell and the dollar rose.

‘We hold a US large cap passive fund within MGTS Greystone Global Growth. North America is a notoriously difficult market to outperform. This tracker offers low cost exposure to more than three thousand US-listed businesses.

‘However, our default investment philosophy is to seek out, and invest in, the world’s very best active managers.’ 

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David Hannis, director, James Brearley & Sons

‘It is fair to say that we have very little exposure to ETFs within our current model portfolios – a common theme of the last five years or so. This is largely because of our ability to have consistently been able to identify active managers that have outperformed their respective benchmarks on a fairly consistent basis.

‘That said, we do recognise the ability for an ETF to provide low cost exposure to a particular asset class or market.

‘The one market where we have experienced difficulties in identifying active managers that consistently outperform their headline index is the US. We have therefore regularly used an ETF or low cost tracker fund as the way to gain exposure to this market.’

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James Horniman, portfolio manager, James Hambro & Partners, London

‘We are active managers because we think over the cycle a good active manager will outperform. Having said this, we are very happy to use passive funds where appropriate.

‘There are situations where it is very hard to outperform with active strategies and the passive alternative is the most effective tool, so why wouldn’t we use them? Like many things the answer as far as we are concerned lies in the blend.

‘A significant portion of our portfolios will be made up of direct equities as we think this is a cost-effective way to deliver value and performance and exploit opportunities in the market. We will use good active managers to access markets where specialist knowledge is required (such as Asia and emerging markets, or themes like technology). We are willing to use passive investments in areas such as US large cap – it has proven difficult for active managers to consistently outperform the S&P 500.

‘We also use passive vehicles for certain index-linked bonds, gold and other thematics.’

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Nathan Sweeney, senior investment manager, Architas, London

‘ETFs provide great tactical asset allocation in your portfolio, particularly to specific themes or factors within asset classes. They are cheap and easy to access and you don’t offend anyone when you sell them.

‘We use a number of ETFs in our portfolio. One example is iShares Physical Gold, which we hold in our Active Reserve fund. This provides us with access to physical gold without taking on any of the risks you get from owning a company, such as bad management and misallocation of capital. We believe the dollar advance has run out of steam and that holding some gold is good portfolio insurance when you are unsure about markets.

‘Another example is the iShares $ Treasury Bond. This is a great way to play duration in your portfolio as you can tactically add and reduce your position on a daily basis depending on your view. One added advantage is you can trade iShares throughout the day whereas open-ended funds have a cut-off point when you can no longer trade that day.’ 

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