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Neptune revamps process & discloses 'active share' across funds

Neptune revamps process & discloses 'active share' across funds

Neptune has revamped its investment process and disclosed the ‘active share’ of each of its funds, urging its rivals to follow suit.

The firm has overhauled its process by introducing a senior analyst role that sits between analysts and fund managers. Senior analysts will run model portfolios on a global sector basis and will be incentivised on the performance of these models.

‘You have got to constantly refine and improve your process. We still have the same engine, we have just tuned it and we are trying to get a better performance out of it,’ Neptune founder and chief executive Robin Geffen (pictured) told Wealth Manager.

‘Over the last three years James Dowey [chief economist] has been very right. All the stuff we have been doing will ensure that our economic and stock work gets an even better performance at a fund level. And there is massive accountability all the way down the investment team to the very top.’

He said the new layer of management in between analysts and fund managers would mean there is more ‘accountability and measurability’ for the performance of underlying stocks across the whole investment team. Going forward two thirds of investment professionals joining Neptune will be experienced and qualified to ACA, CFA or MBA standard, with the remaining one third coming through the firm's graduate scheme with considerable internship experience.

‘Everyone is in real time and on the same page. This is the biggest single thing that is going to make a difference,’ he added.

To encourage analysts to back their own calls with conviction, Neptune has also abolished ‘hold’ recommendations as part of the revamp. Stocks are rated as a buy (equating to a forecasted total return in excess of 12%); outperform (an expected return of 2% to 12%); underperform (2% return to 5% loss); and sell (5% loss and below).

Neptune has also enhanced its risk management system by introducing the SunGard Enterprise system, which allows fund managers to stress test portfolios and see the impact of any potential changes – as well as providing better management information.

‘We are planning a long and independent future. These changes will allow us to run a greater deal of money across strategies,’ said Geffen.

Active share disclosure

The changes have been made as Neptune has published the active share of each of its funds. This figure is expressed as a percentage and measures how much a portfolio deviates from its underlying index.

The average active share across the fund range was a little over 76% at the end of December. Neptune UK Mid Cap, Global Special Situations and Global Alpha had the highest percentages – all at 94% or over, while Neptune Africa had the lowest rating at 46.5%, followed by Neptune India at 58.8%.

Geffen explained: ‘One of the most important things we hope to do through this is to raise the bar through disclosure. We are going to be the first people in the UK to do it. There are life insurance companies out there that have real closet tracker portfolios. It can’t be active share unless all equity portfolios are measured.’

The move follows a similar action by Threadneedle, which recently started to publish active share information on its professional factsheets.

Threadneedle chief executive office Campbell Fleming told Wealth Manager: 'This is about transparency and accountability. As managers we have a duty to demonstrate the value we deliver by providing information that enables investors to evaluate, monitor and assess fund manager performance.'

He added: 'Used in conjunction with other data, active share is another measure for investors to assess whether they are getting what they expect from a manager.'

The firm is currently exploring how best to convey this information to retail investors.

Baillie Gifford has also said it will start publishing active share information across its retail fund range from this month.

The Edinburgh-based firm's director of retail marketing and distribution James Budden told the Financial Times: 'We are passionate about the value of truly active management and recognise the need for investors to be able to identify an actively managed fund among the shoal of closet trackers,' he said. 

'Clients need to be sure they are getting what they are paying for.'

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