Richard Philbin, investment director at Wellian Investment Solutions explains why emerging markets and the UK are back on Wellian’s radar.
'At Wellian Investment Solutions, we sit formally a couple of times per month to discuss many factors surrounding asset allocation and fund selection. Our business model is quite complex as we manage clients under a number of different profiles. We manage white-labelled unitised funds for instance, where we have full reign, allowing us to use open and closed-ended funds.
We also manage portfolios where the total portfolio OCF is a constraint. Some portfolios only utilise passive instruments, while others have a majority of active funds. Most of our models are risk controlled and solutions based – thus making it easier for the advisers that utilise our services as the risk profiling tools they use and our constructed portfolios tend to be broadly complimentary.
When sitting down to discuss asset allocations, we have a large number of factors to take into consideration. It’s safe to say no two meetings are the same. Where there is lots of consistency though is the investment approach undertaken.
All of our models tend to be fully invested across the market cycle; we typically construct portfolios to contain between 15 and 25 underlying holdings. We believe in diversity – investment style, number of holdings, spread of income streams, not too much reliance on one fund for instance. Our portfolio turnover tends to be low – over the long run it has averaged c20% per annum (in terms of names, although our models might increase or reduce the weight allocated to a particular fund throughout the year).
Because of the broad nature of our clients, we can find ourselves recommending a fund for client A, but not client B. We can also find ourselves allocating different weights to the same fund for different clients too. Therefore, no two clients are the same and because of this we don’t have a standard asset allocation model.
We also find it very difficult (if not impossible) to say we are presently ‘underweight’ or ‘overweight’ a market, or asset class. Our investment committee meetings and investment team meetings are lively affairs to say the least.
In the office we have a saying of ‘the answer is seven; what’s the question?’ referring to the fact there is not one correct way of building a portfolio. Once the client requirements have been coded into our systems, we have free reign of building a suitable portfolio for them. Obviously a sense check comes in from other members of the team, but ultimately anything goes when it comes to ideas.
The UK and emerging markets
At the moment, we are talking about increasing allocation to the UK and emerging markets from an equity standpoint, and we are investigating the use of sovereign debt (including index-linked) in the mature markets as we enter the latter stages of the economic cycle – exposure being gained through the Lyxor FTSE Actuaries Gilt ETF.
In the UK we have been topping up existing positions such as Liontrust Special Situations and Threadneedle Equity Income (managed by Richard Colwell, pictured), but we have been investing in the UK offerings by Man GLG UK by using both their Income and Undervalued Assets funds.
We are also debating our standpoint on increasing our exposure to emerging market debt too where the proposition from M&G is our default option.
When it comes to constructing a portfolio, we are aware that it must add to 100% and if we want to include a 5% position for example, we need to be mindful of where this 5% is coming from and how that can impact other risks already accounted for.
We are very mindful that the managers we invest in have the ability to change the shape of their portfolios and are not necessarily entirely in control of their cash flows, so we do not like to double guess what the managers are second guessing what the markets are doing. We tend to invest in managers where we understand their process and our screening tools back this conviction up.'