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Wealth managers miss out on risk rally

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Wealth managers miss out on risk rally

The performance of high risk private client portfolios has underperformed its more cautious strategies, according to Asset Risk Consultants (ARC).

Overall four ARC indices were in the black in the second quarter as major stockmarkets across the globe made healthy progress, with the report - which is compiled using data form 53 private client discretionary managers - showing consistent performance across the board.

The ARC Sterling Cautious index returned 1% of the quarter, while the Balanced Asset and Steady Growth both returned 1.2%.  

However, this matched the 1.2% return in the higher risk Sterling Equity Risk benchmark, suggesting wealth managers were not as confident about markets as other investors.  

This return follows a 0.3% gain in the first three months of the year, leaving the Sterling Equity Risk category languishing in bottom spot of the four indices with a 1.5% return this year.  

The Sterling Cautious and Balanced Asset indices have both returned 1.9%, while the Steady Growth benchmark has returned 1.7% in 2014. 

The performance of  the high risk class can be deemed somewhat disappointing when measured against the 6.1% return in the S&P 500 over the first six months of the year,  which included its best second quarter gain since 2009.  

QE fears

The decline in risk appetite among wealth managers comes as the Federal Reserve tapers quantitative easing.  

In a recent interview with Wealth Manager, London & Capital investment director Ashok Shah said he was increasing his cash weighting to serve as a cushion against QE easing.

‘In the next 12 months we see markets that are not as cheap as they were two years ago,’ Shah said. 

‘In aggregate central banks will be printing money but at a lower pace, so while risk markets will be underpinned, we could go through a profit taking phase.’  

Meanwhile Hawksmoor head of research Jim Wood-Smith (pictured above) told Wealth Manager at the start of July he was preparing for a ‘summer shake-out’.  

‘There is a general sense of nervousness around. Everybody knows global equity is, if not expensive, certainly not cheap and needs something to give it a bit of oomph,’ Wood-Smith said.  

‘We are at the start of the US second quarter earnings season and everyone wants to listen to what corporate America has to say for itself, which leaves us more cautious than we have been for some time.  

‘In context, there are precious few attractive or cheap asset classes at the moment.’   

Others are more bullish about the immediate prospects for equities, including Ashcourt Rowan where an overweight in equities has been the biggest driver of performance over the last 12 months.  

Ashcourt chief investment officer Toni Meadows (above) is not quite ready to give up on risk assets, telling Wealth Manager last month the world remains a long way from the withdrawal of accommodative monetary policy.

‘Going back to last June, it was just after [former Federal Reserve chair Ben] Bernanke’s speech and talking about the ending of quantitative easing took many by surprise,’ Meadows said.

‘In a lower for longer environment, there is enough growth in the world, so we added to equities at that time. In a zero interest rate environment world, there will be stimulus that continues even after the US stops quantitative easing (QE).’

‘We still see Japan printing money, while we have been of the view that the structural weakness of Europe meant the European Central Bank (ECB) would have to stop talking and do something.’

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