Today’s investment universe is populated by a multitude of options, where both the canny and the wily alike can diversify, speculate and accumulate to their heart’s content.
In the face of a seemingly endless array of products, some managers prefer to stay with the basics, stalwartly determined not to do anything ‘exciting’ with client money.
This is the stance taken by Bruce Johnson, senior investment manager at JM Finn’s Ipswich office, who prefers a simple approach to investing. Despite equity markets having recently taken a battering not seen for decades, he has 70%-80% of a portfolio invested in direct equities.
‘[We] focus on the basic principles of wealth management and preservation and don’t try to do anything exciting with client money,’ he says.
While Johnson refuses to be drawn on performance, when asked if he feels he is missing out on the performance enjoyed by more diversified managers, he is adamant the answer is ‘no’.
Hedge funds, he believes, are opaque: ‘The very nature of these funds that are only shining a light on the parts of the returns they want people to see, makes it very difficult for us to invest in them.’
Structured products are also overly complex, he says. ‘I think I would struggle to understand them, if I’m being honest,’ he says.
With more than £100 million that he personally manages, he prefers to invest only in areas he can explain to a client, so an average portfolio is weighted to water companies Severn Trent and Pennon Group, oil companies BG Group and Royal Dutch Shell, while Diageo, Unilever and Associated British Foods also feature.
‘It’s a lot easier to explain to a client that you have bought Associated British Foods, which owns Primark and British Sugar and some agricultural land, rather than a Japanese Nikkei super-tracker.
‘I find with direct equity purchases there is a lot of information about the big companies in the UK market. Most of these companies come and talk to us here, or we hear them speak somewhere else, and they are only too happy to answer questions. If I went to interview most of the hedge fund managers and structured product managers, they would be less than happy.’
‘If we wanted exposure to high risk sectors or countries such as technology or China, we would collectivise that approach,’ he says.
This simple approach means he has never once had a client call with worries about the markets, he says. And since many from his 200 family clients have ‘looked me up and down and said “you’ll see me out”, the back-to-basics method is probably best’, he adds.
Johnson’s investment career began 20 years ago at stockbroker Vivian Gray, and via several takeovers, he found himself working at Gerrard Investment Management. The business was bought by Barclays, and in a predictable scenario when a banking behemoth consumes a lesser entity, the office became ‘an unhappy ship’.
‘Barclays was a vast business and found it very difficult to cope with a small and very different area to core banking.’
He describes the period under Barclays as ‘the most difficult time for us in our careers’, pointing out that ‘ownership by other institutions hadn’t been so much of a problem’.
The main bone of contention was Barclays’ attempts to centralise the management of all the smaller accounts, a move Johnson fiercely resisted: ‘I very much objected to that as I thought it was damaging to the business.’
With the stress of submitting to a banking giant’s requirements mounting, a group (composed of ‘quite a few hyphens I’m afraid… all these old-fashioned stockbrokers’ names’) was approached by JM Finn to set up an office in the increasingly gentrified Ipswich.
While the brokers had received a string of advances over the years – including one from JM Finn to join a local established office – this time, David Overy-Owen, Patrick Hunter-Jones, Andrew Norman-Butler, Andrew Mann and Sharon Rayment made the move.
It’s clear Johnson was keen to shake off the shackles of a multinational corporation when he describes the appeal of JM Finn as a business that is ‘independent, privately owned and managed and run by stockbrokers rather than people whose sole function was as managers’.
None of the party had headed an office before, and Overy-Owen took on the responsibilities of leading the branch.
Around 80%-90% of clients came across, and five years on, the business has £400 million in assets under management, with portfolios ranging from £50,000 to £50 million.
Johnson says ‘there is no question’ the branch is looking out for experienced managers to join but that it ‘surprises me a lot’ that it is so ‘difficult’ to lure those with experience to Ipswich.
His own business grows through word of mouth recommendation, and while other brokers in the office work with IFAs to gain new clients, he has eschewed this increasingly common method of asset growth: ‘My business harks back to my very Victorian beginnings at Vivian Gray. I’ve never had to market myself like that.’
Brewin Dolphin recently announced plans to set up shop in Ipswich with the hire of a four-strong team from Barclays, adding another investment manager presence to a fairly busy marketplace, which features Charles Stanley and Hawksmoor among a number of smaller players. But Johnson dismissed the news, saying he would be ‘surprised’ if the new business has ‘any impact’ on JM Finn’s office.
‘I have no worries. I can’t think it is going to interfere greatly with what we do.’
Although he freely describes his education in the investment world as ‘Victorian’, and emphatically describes Vivian Gray as ‘a very old fashioned business’, he also says he had a ‘distinct advantage’ through working there.
While he now describes his investment process as ‘more modern’ he is proud to have begun his career at a place ‘steeped in history’ and says he would rather not have worked anywhere else.
‘I believe it is a distinct advantage to have the background of understanding the history of stockbroking because Vivian Gray was steeped in 100 years of history.’
Johnson initially qualified as a civil engineer but after 18 months on the job decided he ‘really didn’t like practical designs of buildings’, and following a 10-minute interview set up by a university friend at the stockbrokers, moved into a career that would see him designing private client portfolios instead.
‘After a quick interview he seemed to think I was just the sort of chap they wanted and I got offered the job. That was the end of my interview process.’
The London office of the once-prolific stockbroker had just introduced two computers, and Johnson said he felt the ‘beginning inklings of change’.
Four years later, he was offered the chance to move to Norwich by an elderly stockbroker named Barney Ward who worked for Vivian. ‘He asked why someone like me wouldn’t deign to come and work with him in the country, and I said I would.’
Six months later Ward passed away, and Johnson later discovered he had spent those months telling clients how ‘delighted’ he was to have a new stockbroker lined up. As such, most of the clients came on board with the youngster from London.
There is one change in client behaviour Johnson has noticed over the decades, which is beginning to seem worrying, and that is ‘fund leakages’ after a client’s death.
‘Elderly clients that are dying now are very often in a better financial position than their children and grandchildren,’ he says. ‘And there’s no question that client deaths now are resulting in quite a lot of fund leakages as the children and grandchildren repay mortgages or put funds in readiness for school fees.’
Bruce Johnson’s macro outlook
European leaders’ summits have been a feature of the year. The latest one appeared to make more progress than most, though the extent of consensus remains uncertain. Still, at least we have a government in Greece, while Spain and Italy have received something of a reprieve, even if they are likely to continue to give cause for concern.
Perhaps because of this, markets have been in better heart recently – hardly racing, but delivering more good days than bad. We remain short of the peak reached at the end of the first quarter, but are thankfully comfortably above the lows of May.
With the holiday season now upon us and little of significant interest likely to emerge in the coming weeks, market activity is muted. Indeed, this has been a recent feature. Trading volumes have been low for some time. When markets move, as like as not there will be little weight behind the swings that take place.
There have been few companies providing us with an insight into how the domestic economy is faring. In recent weeks we have seen modest improvements in trading at Greene King and at Debenhams, although both reported adapting their strategy to reflect weaker confidence.
But Europe continues to steal headlines. While the agreement achieved last week indicates a modest softening in Germany’s stance, there is still no real consensus on how to tackle the crisis. The result has been a further weakening of the euro – good for holidaymakers, but not for our exporters – but hopes that any spread of debt contagion have at least been delayed.
The problem with this ongoing, and as yet unresolved, issue of how the eurozone might look in even a few months’ time is that investors are generally unwilling to commit. A blueprint for a new, more federal union has been outlined, but adopting anything radical will be a test. Forecasting outcomes is a mug’s game.