This news service recently spoke to the CEO of the UK asset management house about how it fared during last year's extraordinary events and some of its views for the coming 12 months.
If there is one thing that most wealth managers seem to agree on, it is that in a year’s time they hope the word “COVID” fades from their immediate list of items to watch. The pandemic has been a big risk management exercise.
UK-based Waverton, which oversees £6.9 billion ($9.4 billion) of assets under management, is trying to look beyond the pandemic and has been rotating portfolios into more cyclical stocks to capture a post-vaccine recovery.
“Through the course of the year  we went into a relatively defensive pose and put protection in place. From March we had decent exposure to tech names and this helped us well during the second and third quarters,” Nick Tucker, chief executive of UK wealth and assets at Waverton, told this news service in a call.
Tucker said that Waverton is keen to broaden out portfolios to avoid getting caught out by a shock.
“The markets are looking over the troughs…the vaccine news is a game-changer…and by the end of 2021 it is no longer going to be the issue that everyone focuses on,” Tucker said, referring to the news of several vaccine rollouts in the US, the UK, Europe and other parts of the world.
Tucker, who joined Waverton at the start of January last year, joined a firm originally founded as J O Hambro Investment Management in 1986. For the first 14 years the company was owned by the Hambro family and senior management. In 2001, JOHIM was acquired by Credit Suisse. In 2013, Credit Suisse agreed to sell JOHIM to Somers Limited and to the existing management team - the business was eventually renamed Waverton.
Waverton oversees more than a dozen funds. For example, its Waverton Global Equity Fund returned 11.0 per cent (net of fees) on the A Sterling share class for the six-month period ending 31 October 2020, just ahead of 10.8 per cent for the MSCI AC World Index. On the other hand, the Waverton UK Fund produced a negative return of -6.6 per cent after fees on the A Sterling share class for the six-month period to 31 October, against -3.4 per cent for the MSCI UK All Cap Index. (The largest positive contributors to that fund were overweight positions in industrials and an underweight positions in real estate. The biggest negative contributors, however, were overweight positions in energy and an underweight positions in technology.) In a third case, the Waverton Sterling Bond Fund returned 2.24 per cent (net of fees) on the A Sterling share class for the six-month period ending 31 October 2020, vs -2.44 per cent for the Markit iBoxx GBP Gilts Index.
From the ground up
“We are a lot more `bottom-up’ than most of our competitors….we choose companies on their ability to achieve free cashflow and which have a clearly defined growth model. We are agnostic for countries and sectors,” Tucker said. “In the tug between `growth’ and `value’ we are agnostic too but there is a tendency for our process to avoid an industry such as banking for example. We have though become deliberately more balanced between growth and value in our global portfolios,” he continued.
That’s not to say that the firm doesn't have top-down, macro-economic views. In its January outlook, it states that “our money is on the likelihood of the economy growing strongly by the end of this year.” That is based on the view that highly stimulatory monetary policy will remain. If there is a boom later in the year it could fuel inflationary pressures. Waverton is neutral on equities, underweight on fixed income (it does not like negative yields on many UK government bonds, for example), and overweight alternatives such as property and absolute return strategies; it is neutral on cash.
There are some concerns – Waverton regards the global stock market’s valuations as “elevated” – a price-earnings ratio around 20, above a 20-year average of between 14 and 16.
“We are happy with the performance we are generating. Clients are pleased with performance...most feel pretty lucky to be in the situation they are in. There are concerns about who is going to pay the bill eventually,” he said, referring to likely to tax hikes from governments.
The fixed income universe doesn’t play as big a role in portfolios as it has in the past, given ultra-low interest rates and yields. Waverton looks at real assets – gold, real estate and infrastructure, Tucker said.
Waverton does use derivatives to hedge the downside. “In a flat or rising market the cost is about 20 bps of performance. They can add more to performance on a portfolio overall. We are looking at some inflation hedges at the moment. We wonder if inflation is coming back and are having a discussion about that the moment,” he added.