If anyone used coats of arms nowadays, Chris Sexton could adopt a worse motto than ‘caveat emptor’. This axiom has informed his career from an early stage, and his relationship with his clients.
Now investment director at Saunderson House and ultimately responsible for around £1.75 billion in assets, Sexton has taken a lead in restructuring and formalising the firm’s investment process and client communications.
In his six years in the post, the principle of ‘buyer beware’ has informed some pretty punchy asset allocation decisions that have been ultimately vindicated by the past three years.
Now heavily back in equities, he has a long-term and cogent view of why he sees solid support to pricing despite an air of malaise settling in over the global economy. But as an adviser required to bring his clients with him, the principle of caveat emptor extends to ensuring clients are able to buy into his expertise.
‘When I turned up here I helped develop the investment process, including the ideas of simplicity and transparency. During 2005/06 we would still regularly be asked “where is my exposure to hedge?” – not even hedge funds, just hedge – “where is my exposure to structured products?”,’ says Sexton.
‘There was a sense that “you are not sophisticated, you just don’t understand these things”. Over the last two years many people have come round to the point of view that you want to be able to look at anything [in a portfolio], understand it, and sell it the next day if you need to.’
Born in 1965 in Chadwell Heath, Essex, Sexton grew up in Chelmsford, where his father was an engineer in Ford’s research and development department and his mother a teacher.
He left education after completing his A levels to begin a career in the City, joining insurer General Accident as a specialist underwriter on the Lloyds markets.
‘At that point, leading up to the Big Bang, everyone wanted to be a broker: there was this idea that you could go into the City and make your own way. But of course, all anyone would ask you would be what degree you had.’
So he headed to university to study economics, achieving a first-class degree and stumbling on his future career. ‘One of my tutors told me that I was not aggressive enough to be a broker, but that I was a natural born fund manager. And that was it.’
After starting his career in the small investment management team of Family Assurance Friendly Society, he moved on to the British Steel Pension fund.
‘The atmosphere was like a library. We would spend days, sometimes weeks, trying to get to grips with the finances of individual companies, modelling cash flow and revenues and deciding whether or not we wanted to own the shares. It was very rigorous research.’
‘It was definitely useful in providing conviction to your calls so you can haul the senior fund manager up by his lapels and say “you need to sell these things”.’
But he began to wonder whether he was painting himself into a corner. Working on a fund that was in an inevitable period of long-term decline was also not a great position to be in, he adds.
He had never considered was private client work. But after an approach by head-hunters, he says the change appealed on several levels. ‘[Founder] Nick Fletcher has a very clear vision of what he wants to do, enabling me to come in with a very clear sense of what I needed to do. British Steel had £9 billion but it wasn’t growing – this is a story that I can go out with to clients and prospective clients.’
Since joining, Sexton’s investment research team has grown from two to six, with a 12-strong investment committee meeting monthly.
Sexton shook up client communications, establishing monthly investment commentaries, twice-yearly reports, and one-off bulletins on major asset allocation calls, all written by himself.
After some initial grumbles about his methodology (which focuses on a pure blend of traditional equity, fixed interest, cash and property), clients saw results through the credit crunch and emerged with their faith strengthened. He estimates his allocation calls have a 95% client participation rate.
‘We came up with a seven-point philosophy, of which the key three points were transparency, analysis and value. If an investment product, fund or proposition is not transparent – if we can’t pull it apart to see how it works, we are not interested. If it is transparent we do full diligence.
‘Finally, value: we are focused on whether what we are buying is attractively priced rather than performance or other criteria.’
His decision to cut property exposure in 2006, and then all small-cap exposure the following year was significant in winning the support of clients initially unconvinced by Sexton’s back-to-basics management.
‘All our [equity] funds were underperforming like stink. We were getting a lot of stick but had a lot of very good meetings with managers who were saying it makes no sense to buy these companies and were being consistent with their methodology: they were saying copper would have to be at £100 a pound to justify these valuations. Then the market corrected, and all our funds went from fourth to first quartile.’
Having shifted heavily into gilts ahead of the credit crunch, the company was able to provide significant downside protection, before shifting into corporate debt last year. The last significant move was back into property in time for the yield compression of the last quarter of 2009.
Sexton’s value approach suggests that upgrading equity exposure will now be the next significant move.
‘We moved back into property because cash looked expensive. We moved equity exposure overseas at the start of the year, with the exception of Europe, although I would like to start buying Europe,’ he adds.
‘I suspect the eurozone will be restructured but the EU and IMF’s £750 billion was a fireblanket over it that said [they] are not going to be bounced out of it by speculators. Core Europe is actually doing well now because the euro’s value has come down. Time and a modicum of growth will help things out.’