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MPS Investment Committee: Philip Bagshaw, City Asset Management

Philip Bagshaw, senior portfolio analyst at City Asset Management discusses how the firm is turning to structured products.

MPS Investment Committee: Philip Bagshaw, City Asset Management

The core philosophy at City Asset Management (CAM) is real return investing and looking to generate returns that increase above inflation. This means that when we look broadly at capital markets, we are looking to see attractive real returns on a forward-looking basis.

If you look at the expected long-term (10 year) return of a ‘balanced’ portfolio (eg 60/40 equity/bond), you notice it has been on a downward trend for several years.

This has happened as equity markets have ground higher and yields come down. The result, though, is that there is continually less real value in assets and this is driving a long-term backdrop that means we are not inclined to take significant risks at this current moment.

As well as the slower moving longer term picture, we are, of course, focused on the shorter term backdrop.

After the continuous rise of equities throughout 2017, this year has been far more differentiated, with the first sell off in February and a second, more serious one, recently that has yet to properly end.

Coming in to the year, there were a number of warning signs that it might be more difficult, with central bank liquidity set to turn negative for the first time in a number of years. It is primarily for this reason we have been reluctant to buy the most recent dip in a significant way and, when combined with a longer-term view, means we hold a cautious outlook.

The structured product market

One of the areas where we have been increasing our exposure in our MPS is to the structured product market via the Fortem Progressive Growth fund.

We use these structured products investments extensively in our bespoke service, where we buy them directly, and we wanted to have this same exposure in our MPS offering as well. The defined return nature of the structured products we buy means that they fit nicely into the outcome-based style of investing that underpins our philosophy.

Weak returns

Further to this, we think there is an asset allocation reason for increasing our weight which we did in September this year. The backdrop of potentially weak forward looking returns means that the 6-7% targeted by Fortem in a wide range of market scenarios looks like a favourable investment to complement equity exposure.

In terms of the fund itself, we felt it was the best reflection of the way we use structured products and has more defined risk parameters than other funds.

Further to this, it is managed by experienced derivatives experts at Fortem with whom we have held professional relationships for several years.


Our real return philosophy looks to generate returns in excess of inflation and is the basis of our model portfolio services.

The core strategies we offer are Real2, Real3, Real4 and Real5 and the corresponding benchmarks are CPI+2, 3, 4
and 5% according to the level of risk. The CAM model portfolio service has been run since 2011.

The Real3 and Real4 mandates are our most popular and, over time, we expect the risk of Real3 to be about half that of global equities and Real4 risk to be around two thirds of global equities.

Currently Real3 has 46% allocation to equities, 25% to fixed income, 23% to alternatives and property.  

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