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A Large US Market Exposure Pays Off For Bordier & Cie (UK)

Tom Burroughes

15 December 2021

This news service recently caught up with [tag|Bordier & Cie (UK)|]Bordier & Cie (UK), the wealth management house, to ask about the kind of investment journey it has had in the past year and where it is heading. We spoke to Mark Robinson, its chief investment officer.

Please tell us about investment performance and how you achieved it
Robinson: We do not manage our strategies with reference to performance comparators, benchmarks or peer groups as we believe that a fully-unconstrained approach (within appropriate risk parameters) is optimal. We do not want to feel compelled to own things we don’t like, and we believe that our strong long-term performance track record validates this unconstrained approach. That said, we are very pleased that our recent performance appears to be strong versus the peer group.

Performance has come from a variety of sources. We moved to a maximum equity exposure across our range of investment strategies in the fourth quarter of last year, after vaccines were announced, as we believed that risk assets would perform well on the back of a potentially sharp global economic recovery, supported by continued loose monetary policy and stimulus packages from central banks and governments. This decision has worked well as equity markets have continued to forge ahead.

We increased our equity weighting partly via new investments in renewable energy and infrastructure as we believed that the huge, multi-decade commitment to these sectors from all key regions of the world would support long-term superior growth and outperformance. We also believed that the election of Joe Biden, and a more pro-environment administration, potentially provided a good entry point into the sector. The renewable energy sector is not without volatility, but our investment has proved successful to date, as has our investment in global infrastructure.

We significantly increased our exposure to the US market during 2020 and it now constitutes just under half of the equity component of each of our strategies. Given the continued relative outperformance of the US market, where indices have reached several all-times highs over the year, this has been an important move. We recognise that the US market is trading at a higher valuation than most other developed regions, but the beauty of allocating to active managers is that they have freedom to invest wherever they see a combination of value and growth opportunity right across the market cap spectrum. 

Our portfolios have benefitted from a broadening in market leadership and some strong performance from our active, non-benchmark hugging funds, particularly in more challenged regions such as the UK and Europe.

Our fixed income exposure has also proven resilient in a more uncertain period for bond markets. It is well diversified and skewed towards inflation-linked bonds and to strategic managers who have been able to pivot quickly to changing macro and policy conditions. This year, our deliberate move to reduce interest rate sensitivity to our fixed interest exposure has worked well and is reflective of our concern about higher inflation and the gradual removal of monetary stimulus. 

Our exposure to alternative investments, generally via ‘market neutral’ equity and bond funds, continues to provide exactly what we want – uncorrelated positive returns. 

Has Bordier had to be more tactical in asset allocation and risk management during the past two years because of the pandemic?
Combining a tactical overlay with longer-term strategic positioning has always been part of our investment philosophy, but it’s fair to say that the past two years have required agility and even more active management than usual to adapt to a rapidly evolving economic and market backdrop.

To add some colour, moving into 2020 our view on markets was reasonably positive. We had seen some progress in terms of the trade conflict between the US and China. The UK election result had been welcomed by the market and economic data was looking slightly better than expected. The general background globally was of modest but growth with muted inflation and valuations were not looking that stretched. The ‘Brexit discount’ on the UK market was looking excessive in our view and so we elected to increase our equity exposure.

As the virus began to spread it became clear that changes and decisive actions were required, which is exactly what we did. On the equity side we reduced our exposure to Japan, which we believed faced some of its own structural headwinds and would be badly affected by the impact of the virus on key trading partners. We also reduced our high yield bond exposure shortly before this area of the market sold off aggressively. Most significantly, however, we elected to reduce our exposure to the UK market in favour of the US and Asia. Based on a wide range of economic forecasts our view was that the UK economy would be deeply impacted by, and slow to recover from, the effects of COVID-19 and faced further headwinds from the potential looming trade disruption. By adding to the US market, we increased exposure to areas of the economy, such as increasing digitalisation, which are likely to prosper over the next few years. In Asia we were adding to countries that were recovering well from the early imposition of lockdown restrictions, together with the tailwind of faster economic growth than many western markets over the next three to five years.

What would you say have been the differentiating qualities of Bordier when appealing to clients?
We pride ourselves on marrying a contemporary approach to managing money with the old-fashioned values of high-quality client service. As part of the Bordier Group, which today manages assets of circa £12.4 billion for about 4,000 families, we draw upon more than 175 years’ investment management experience and can offer clients services that many of our peers cannot.

More importantly still, we do not market any in-house funds and are entirely independent, with the sole and genuine focus of doing what is right for our clients. We align their interests with our own, very often investing alongside them. As I often say, we “eat our own cooking.”

In the current environment, which has seen a growing amount of consolidation and M&A activity, our clients take even greater comfort in the Group’s CET1 ratio; at 31.1 per cent, it is a key indicator of financial strength and Bordier has maintained a stable ratio of around 25 per cent over the last decade. The Group’s liquidity ratio has also been between five to15 times higher than the level required of Swiss institutions since 2015. Whilst some might regard this cushion as excessive, we consider it to be prudent and, in our clients’, best interests. 

Our team has been through several stock market cycles, learning valuable lessons and insight into the behaviour of assets in a wide variety of market conditions. This experience is vital in negotiating what is still one of the most challenging periods in economic and stock market history.

We place a high value on client service and communication and believe it is important to communicate consistently and effectively with clients, especially at times of market stress. Our clients benefit from a low client-to-manager ratio, so we have a deep understanding of their requirements and can provide a highly personal and efficient service. 

Another aspect that helps differentiate us from our peers is the fact that we have no external shareholders; they are very often both impatient and short term in their outlook. Bordier is a true, fifth generation family-owned business and, again, this means that we can be genuinely long term in our outlook – like our clients.