Ian Woolley (pictured above), senior investment analyst at Hawksmoor Investment Management, discusses why the firm are cautious on equity markets and only target the special cases.
This month we are making major changes to our range of model portfolios. We are not just repainting the spare room – if not quite knocking down walls, ripping up carpets and converting the loft to a billiards room, the changes are important.
This renovation work does not flow from a newfound enlightenment that flipped our world view. Rather, these alterations have been nearly six months in the making.
Hawksmoor has been successfully managing models for nearly 10 years. Yet, in that decade, our industry has gone through profound regulatory change. The market has evolved, and so must we. Let us try to explain what we are up to.
Importantly, we are building on what we have achieved over the past decade. Our ultimate aim is to enhance the model portfolio service experience for both advisers and their clients.
One of the most important changes that I am sure you will recognise is the regulatory prominence of portfolio suitability. How can an adviser be confident that a chosen portfolio matches the requirements of their clients? Our answer is five-fold: clearer naming, tighter asset allocation parameters, an expanded range of portfolio options, risk mapping questionnaires and independent third-party risk ratings (we use Dynamic Planner and Defaqto).
Let’s start with naming. Both Citywire and the Financial Conduct Authority last year highlighted the inconsistent approach our industry takes to portfolio names. In one study, portfolios referred to as ‘balanced’ or ‘moderate’ had equity allocations that ranged from 5% to 60%.
In an attempt to improve clarity, we will include the equity range in the portfolio name. Enter, stage left, the ‘Hawksmoor Moderate (40-60% Equity)’ portfolio. It does what it says on the tin.
Our expansion take us from seven to 12 portfolios: four distinct risk levels and three options within each (Core, Higher Income and Sustainable World – our ESG-based portfolios). If you’re a cautious investor seeking income, we have a portfolio for you. If you’re an investor with a higher risk appetite and a desire to invest in sustainable and positive impact companies, we have a portfolio for you, too.
The management of the service is passing to Hawksmoor’s discretionary research team, and portfolio construction will henceforth match the disciplines of our core discretionary fund management proposition.
What is certainly not changing is the active fund selection process, which will continue to be led by Daniel Lockyer and Ben Conway, managers of the Hawksmoor Vanbrugh, Distribution and Global Opportunities funds. The core Hawksmoor investment philosophy of adding value by active management and fund selection continues.
Our asset allocations are typically cautious. In terms of equity allocation, we are currently sitting with Cautious (0-40%) at 24%, Moderate (40-60%) at 48%, Adventurous (60-80%) at 76% and Equity Risk (80-100%) at its usual 98%.
The year-end gloom proved to be overplayed (as much of the previous optimism was, too). Although the falls in equities in the fourth quarter of last year have brought a number of valuations into more interesting territory, we are far from convinced that markets offer irresistible value.
We are more attracted by special situations and themes, and by managers with records of creating value regardless of market cycles. Examples of these (that may not appear in all our models) are Man GLG Undervalued Assets and WHEB Sustainability. Henry Dixon has an outstanding record managing the former, and we are especially attracted at present to some of the opportunities available in the UK as a result of Brexit.
WHEB is a less well-known boutique specializing in sustainability. The fund is global and invests in companies that are either direct beneficiaries of the move to a more sustainable economic model or assist other businesses with this.