This is not the first time David Miller has been a Wealth Manager cover star, but back at the time of his previous appearance, in September 2009, the company he worked for looked very different.
At the time head of alternative investments at Cheviot Asset Management, the company has since merged with Quilter and subsequently been bought by Old Mutual. Some may argue that this has created a completely different beast, but Miller says that in reality not much has changed.
‘In terms of our approach to investment and the way we make decisions and report to clients, not a lot has changed. It has evolved, but it hasn’t changed,’ he says.
‘We have a seat at the table and we have resources to manage money. Increasingly its expensive running a business and that isn’t going away. One has to be realistic about the fact that that is how life is. Whether it’s regulation being more expensive or what clients want, who are looking for much more customisation. We have to invest and have resources to make that happen, so size helps.’
While the company has continued its evolution, Miller’s position has also developed. He is now investment director and sits on several committees: asset allocation, stock selection, fixed income and alternatives.
In 2009, Cheviot Asset Management had £2.5 billion of assets under management, which has since grown to £20 billion in seven years through the mergers and acquisitions. The merger with Quilter in 2013, understood to be for a sum around £100 million, brought that up to £12 billion.
By the time Old Mutual Wealth acquired Quilter Cheviot in 2014 for £585 million, the company had already amassed £16.5 billion in assets.
Its parent, Old Mutual Wealth, oversees £119 billion in client funds, according to figures from September 2016.
‘I don’t find the increase in size a hindrance,’ Miller says. ‘I think it’s an advantage for us that we’ve had this transition, but without a reengineering of the business.’
He holds the same view about the wealth management industry as he does the business itself: although it may appear that everything is different, at the core it has remained constant.
‘The basics haven’t changed much. Things like wealth preservation, transparency, value for money, it’s still what clients are after. People have also always wanted solutions based approaches.’
He argues that absolute returns, inflation protection and good communication are also what clients have always wanted. He admits, however, the main difference is no one ever thought interest rates would remain as low as they have for so long.
The Financial Conduct Authority, in its recent asset management market review, criticised fund managers for failing to deliver value for money. Since then it has become a hot industry topic, which has once again fired up the debate around passive versus active.
In wealth management, the question of how much you should pay for advice has also come back to the fore and Miller argues that it is up to everyone to ensure they are ‘worth what we are paid’.
‘Our business model is transparent, we invest most of our clients’ money directly into the stock market and in bonds. We provide customised solutions to our clients. In terms of transparency it’s very straightforward,’ he says.
‘In terms of value for money, in this debate between active and passive I haven’t hesitated to go on the front foot about saying good advice is worth paying for. The idea that buying the index is somehow okay and that’s the answer isn’t correct.
‘We think the index is a reflection of the past and we want to invest in the future.’
While a lot of the firm’s clients’ portfolios hold direct equity, for smaller clients the team invests in funds. These decisions on where to invest clients’ money are made following extensive conversations in the different committees, which he says can at times even be contradictory.
‘My experience is you make lots of little calls to get yourself into the right position. Incrementally, you collect evidence and use opinions to create a judgement.’
And that is what he has done over 2016, which was a political whirlwind of a year.
During this time, Miller’s ‘Diary of a Fund Manager’ has become a regular alert in people’s mailboxes – a piece he writes weekly on investment views. These started three years ago and provide an insight into what he is thinking about markets.
In these and over the course of our conversation, one thing Miller emphasises again and again is the need to cut out background noise in favour of reality.
Many wealth managers will tell you to not listen to the background noise, but this has become increasingly difficult in such uncertain times – both in financial markets and politics.
However, uncertainties will never go away and if it was not Brexit or Donald Trump’s triumph in the US, it would have been something else. But after the two big events of last year, Miller says the firm’s portfolios experienced double digit returns as the markets rallied.
‘We had a good Brexit,’ he starts. ‘We didn’t get up at 3am and change the portfolios. We had positioned the portfolios for a view of the world which didn’t really change.
‘I think it’s very important to be rational about the present and you can only do that if you’re just a bit ahead of the curve. We took the view that seven billion people around the world would wake up on 24 June and wouldn’t care about the result of what happened in the UK.’
He says that at the time, he believed the global economy would not change trajectory because of the referendum vote and the team was backing companies with international earnings rather than domestic, which paid off in two ways.
The first was the direct investments they had in overseas markets, specifically US and Europe, and the second, because the sterling decline meant their value further increased because the companies had significant dollar earnings.
The team also thought at the time that quality and longer duration would be more attractive for fixed income investments in an environment of moderate growth and moderate inflation, rather than putting money in high yield bonds or short duration.
The calls have paid off with a typical medium risk portfolio continuing to show positive returns.
A typical balanced portfolio has returned 18.85% compared to the ARC PCI Balanced average return of 16.7% over three years to September 2016. Over five years, the portfolio has returned 45.71% versus an average of 38%.
Currently the team is positioning the portfolios overweight in equities, focusing on companies that can deliver earnings and profit growth, while paying dividends. Although they have some investments in Japan and Europe, where the team is watching the political situations very carefully, the main area of interest remains the US.
‘In the US we’re seeing a resurgence of more domestic companies. We started investing in American banks last year. We took the view that it was cheap and added to it and that’s been the place to be in the last few months,’ Miller explains.
He is an adamant supporter of active management versus passive, but even he admits that sometimes exchange-traded funds (ETFs) can be useful – if they are used actively. As an example, prior to Brexit, the team invested in a US Treasuries ETF, which helped drive positive performance.
If 2016 was a year of turmoil, there are plenty of things to watch out for this year too.
‘There is a whole long list of uncertainties out there but it’s always going to be like that,’ Miller says. ‘We are watching carefully whether policy changes in the US will drive economic growth up. The other big issues are inflation or not and globalisation or not.’