– 13 March 2017
Carnegie Smyth, Signia Wealth’s Chief Executive is named one of the 2017 PAM Top 40 Under 40.
Now in its 8th year, the 2017 PAM Top 40 Under 40 initiative recognises, introduces and promotes the rising stars of the private client wealth management world in the UK and UK Crown Dependencies.
The PAM Top 40 Under 40 began with an open call for nominations. Once the nomination period was over the entrants were shortlisted based on the strength of their nomination, or nominations.
The final list was drawn up based upon the qualities that the nominees were deemed to have by their nominators. Other factors taken into account included the reputation or performance of the company that the nominee works for, feedback from the most senior PAM executives, trajectory of promotion/business development success and relative age – younger individuals achieving senior positions at the same time as older peers points to greater future potential.
In addition, PAM Insight used its own experience and knowledge of who is rising to the top quickly, and why.
Investment Week Big Question Part II: Have investors become too optimistic about the impact of a Trump presidency?
– Etienne de Merlis, chief investment officer at Signia Wealth
– 19 January 2017
Answering complex questions
Since Trump was elected, the S&P has gone up by 6.73%, growth expectations for the US have been reforecast up and various confidence indices have risen to levels not seen since before the 2008 crisis. This is based solely on optimism and the view that under the new president, the US economy will accelerate.
With two thirds of US growth based on consumption, the wealth effect and the boost in confidence resulting from the election result might help achieve this objective, but it may not be enough.
Nothing has been achieved so far, the execution risks linked to a Trump presidency are high and there are still questions to be answered: will Trump’s team be able to work together towards a coherent agenda?
Will they get the full support of the Republican Party beyond tax cuts? Will they be able to engineer new relationships with partners without triggering a trade war?
Some answers to these important questions will be given during Trump’s first 100 days, but investors might wake up to a more complex reality.
What are the big sustainable investment themes for next year and beyond and how are you gaining exposure to these within your portfolio?
– 28 November 2016
Over the next decade, one of the most powerful investment themes is healthy living. This themes has highlighted two significant trends: global ageing populations and changing consumer behaviour.
According to the OECD, more than 25% of the global population will be over 65-years-old by 2050, compared with just 15% today. In the face of this ageing population and an increase in chronic diseases such as diabetes and obesity, healthcare costs are rising in both absolute terms and as a percentage of GDP. Preventative care, biotech and medical advice manufactures, in particular early diagnosis equipment, are not the only beneficiary of challenges in an ageing population but are more importantly offering sustainable solutions to an ageing society.
Concurrently, growing awareness of the benefits of a healthy lifestyle are creating growth opportunities in areas such as food and diet supplements, personal care, sportswear and fitness.
We have gained exposure to this theme by investing in a few select consumer-oriented funds, which have a structural bias towards consumer staples, consumer discretionary and healthcare. It is imperative to adopt a long-term mindset when exploring these multi-year sustainable thematic opportunities.
Wealth Manager Top 100 2016: the first 25 leading names
– 24 November 2016
Etienne de Merlis
Etienne de Merlis has more than 23 years’ experience in financial markets and investment, having spent eight of those as a derivatives structurer in Paris and London and 14 years managing multi-asset portfolios for ultra-high net worth clients at JPMorgan. There he oversaw a team of 12 people managing more than $20 billion.
Signia, which runs £1.3 billion, holds around 90% of its assets in third-party funds. He names volatility trades in a turbulent 2016 for markets as his best investment call of the year and his killer question for fund managers is ‘give me an example of a trade that has not worked and how you managed risk around that?’
Blend credit risks with cash to get returns
– Christopher Meurice
– 3 November 2016
One of the challenges for money managers at present is undoubtedly centred on how to invest in the current low-growth environment.
The risk and return behaviour of traditional asset classes has undergone a step change away from the patterns we have experienced before. In the past, we saw large swings in asset returns, but overall markets provided very strong long-term results.
Unless one was unfortunate enough to deploy capital in equities at the very peaks of 2000 or 2008, then stocks, which make up the lion’s share of traditional multi-asset portfolios, have done very well for investors.
Furthermore, investors in fixed income markets have benefitted exceptionally from a persistent bond bull market in the past several decades, if not longer. many macroeconomic factors underpinned this performance and, of course, sub-asset classes varied.
However, corporate sales grew, which increased earnings and left plenty of space for capital expenditure and future growth. Investors were tasked with an apparently more straightforward role of picking from the many rising asset classes that best suited their clients’ needs. Investing in the past few decades will certainly not have felt easy, but with hindsight, investors may need to admit they have benefitted from a particularly benign status quo.
In contrast, current low-growth conditions demand more stringent investment criteria, as broad beta exposure is unlikely to reard investors for risk, at least not at the level they have grown used to.
Despite my best intentions not to quote Warren Buffet: “only when the tide goes out do you discover who’s been swimming naked”. We should consider the implication of most asset classes offering poor to negative future returns and position portfolios accordingly, but there is no silver bullet; the needs of the client will largely dictate which path to follow.
While all multi-asset portfolios should target income generation, capital growth, capital protection and volatility dampening to various degrees, clients have specific needs and aspirations for their money that will drive the relative focus.
Before examining specific asset classes, the over-arching theme of low growth investing should be to take a fresh look at all asset classes in general, and re-evaluate whether they continue to provide the traditional risk/return profiles they showed in the past.
For example, sovereign debt historically provided total capital protection and moderate yields. but by mid-2016, roughly 30 per cent of all government bonds were trading at negative yields, guaranteeing investors losses from their investments. In the Eurozone closer to 50 per cent of all outstanding bonds were trading at negative yields. This was primarily led by government bonds, but was swiftly followed by corporates issuing at negative or flat yields.
Therefore, it is crucial that investors reconsider their rationale for holding sovereign debt and thoroughly scrutinise why it may be useful to hold such an asset. Investors should minimise their exposure to assets whose potential for return is entirely driven by a ‘greater fool’ theory, as these expensive assets have a long way to fall.
The non-price-sensitive central banks may have provided investors with a conveniently greater fool to sell their sovereign debt to, but this is unlikely to be a sustainable dynamic. Today’s low growth has come together with all-time valuations in rates and credit while showing stubbornly positive correlations to equities, arguably diminishing fixed income’s ability to diversify a portfolio effectively.
The themes of expensiveness and inconsistent correlations personify the low growth environment in many ways and cause difficulties for investors. Crucially, investors must search for alternatives to what fixed income used to provide.
In some regions, cash can still be useful preserver of capital, but it provides either very low or even negative yields – a situation exemplified by Europe’s -0.4 per cent central deposit rate. Investors can still fund good pockets of yield and fundamental opportunities further down the credit spectrum, in particular in the emerging markets and mortgage-backed securities, with the latter enjoying government guarantees to some extent. However, money managers need to be aware that they are taking credit and potentially currency risks in these sectors of the market, and should use active management to compensate for their lack of direct expertise in the area. By taking on credit risk selectively and blending it with cash, it is still possible to generate strong total returns including an income component without jeopardising capital protection and diversification.
In the current period of growth, a vicious cycle has formed as investors increase their focus on reliable income, pressuring yields down and perpetuating the difficulty of hunting for said income. Some investors have taken to bond-proxy equities for a source of income, driving their valuations to all-time highs and implicitly assigning them bond-like characteristics. This is particularly evident in the US Staples sector and it presents a serious risk to portfolios.
Equities should never be regarded as income generators in the same way as fixed income. They are further down the capital structure, and dividends are subject to gar more volatility than coupon payments, plus there is no guarantee that the outlay maintains its value throughout.
Furthermore, the volatility profile is more significant and income generating stocks will not adequately diversify the portfolio from other equity investments – a role that fixed income has traditionally fulfilled. As the cost of debt has fallen so low and consequently capital allocation has been so poor, it is true that equity yield is more attractive than bond yield, but we believe this is an aberration that is causing bubbles in equity markets and should be avoided in a low growth environment.
Despite these bubbles, we believe that there is still some genuine growth to be found in equities. The pie does not necessarily need to be growing in order for the best businesses to take market share and provide strong returns for equity investors.
Being selective in such a zero-sum environment can be advantageous. Once again, using focused active strategies capable of generating alpha in the innovative sections of the market can be a fertile source of growth and returns. The risk of this approach is that growth pockets have become highly sought after and expensive.
But unlike the bond proxies, some companies deserve higher valuation due to strong sales and earnings growth. Under this selective approach, one should not just concentrate on the popular technology and healthcare sectors that have enjoyed the limelight, but rather blend with the out-of-favour.
The first benefit is that there are plenty of missed self-help growth opportunities outside of these two areas that are cheaper due to their lower overt coverage, and the second is that the resulting exposure is more balanced in case of a change in markets.
Despite the best efforts of investors, we do not believe markets can be timed, so while focusing on the obvious pockets of growth, investors should keep an open mind by rigorously assessing opportunities in the under-owned and un-loved portions of the markets as they will provide balance and opportunity to the portfolio.
In terms of opportunity, some of the areas traditionally labelled as value will provide growth, and these opportunities can currently be picked up at bargain prices, even excluding the effect of re-ratings.
Because the low growth regime has seen low volumes and intermittent bouts of volatility, in particular through style and sector rotations, it would be prudent to spread equity risk in a balanced fashion while capturing the pickets of growth available.
When markets turn, either in a recession or growth spurt, the portfolio must be able to protect capital or produce gains. Investors must consider that bunching into obviously crowded trades is not the only source of growth available. Just as we should reassess the current risk/return profile of fixed income, we should also reconsider what has been traditionally regarded as growth, quality or value in order to pick up on the real growth available, even when it is disguised as a strongly contrarian idea.
The low-growth regime provides investors with unique and severe challenges, so a fresh look at existing asset classes is vital. Aside from equities and fixed income, there are also plentiful opportunities in the derivatives space where structured products for example, can give pragmatic investors valuable asymmetrical payoffs. Where there is a requirement for known and stable income, such products can be a boon in this environment.
The alternatives space also contains far more idiosyncratic opportunities to take advantage of, with the likes of infrastructure and property stepping into the role of income generator and diversifier for multi-asset portfolios, although driven by overwhelming investor demand for something different in a low growth world, many new and un-tested strategies are being launched. The danger of being pushed into these unfamiliar, un-acknowledged or un-monitored risks has never been higher, so investors should tread with caution in this new regime.
Christopher Meurice is associate director at Signia Wealth.