Hanbury Wealth director Mandy Dale has a maths degree and a keen interest in economics. This drives her interest in using a ‘science-backed mathematical process’ for fund selection in Hanbury’s model portfolios.
The Bishop’s Stortford-based firm uses Distribution Technology for risk profiling and asset allocation. And Hanbury’s investment committee employs a battery of tests before selecting individual funds.
These tests include looking at ratings, fund managers, quartile rankings and performance during certain events. This is called the Hanbury Wealth Algorithm.
One fund selected for all model portfolios is the Old Mutual UK Mid Cap fund (see chart below), managed by Citywire AAA-rated Richard Watts. ‘We think UK mid caps are undervalued, particularly compared with large caps,’ Dale (pictured) said.
She added the fund is reviewed quarterly and consistently outperforms its peers. ‘Once it passed its initial checks, we looked more deeply at its underlying strategy and behaviour, during different times in the economic cycle,’ said Dale.
Perhaps surprisingly, she is positive about Mifid II legislation that came into force at the start of the year. ‘Product governance is brilliant, because our technical team is forced to ensure every fund we recommend is suitable for the client,’ she said.
The firm’s model portfolios are run on an advisory basis and so are only switched on the clients’ instruction. Suggestions are communicated either at review meetings, or ad hoc if urgent. Changes are made once the client consents.
Has Mifid II made this whole process harder? ‘No, but it’s definitely more time consuming,’ Dale said. ‘The legislation is more about recording further due diligence and, in the long run, this is best for the client.’
Mifid II has also made Hanbury think about its lower value clients. Standard Life MyFolio and multi-manager funds play a role here, while the firm is also looking at Parmenion in this context. For those with less than £100,000 to invest, Vanguard LifeStrategy is sometimes recommended.
But the firm also uses discretionary fund managers (DFMs), citing Investec as a favourite. ‘I like its stock selection, processes and transparency,’ Dale said. ‘It stood out when we compared it with several DFMs.’
Managing director Chris Emery added the bigger DFMs often come out on top because there is more uniform information available about them. ‘It feels like a risk with someone else’s money to go to a smaller boutique-type DFM because they tend to only have limited historic performance data.’
He added a DFM that has been really good for several years ends up not being a boutique any more. ‘So it’s hard to back a small horse in the DFM sector,’ Emery said.
Hanbury Wealth is around 90% active and 10% passive across its investment propositions. ‘Passive can be good for the long term, but having a lot of active in our strategies works really well,’ Emery said.
Dale added: ‘The economic cycle isn’t what it was a decade ago, so diversification is much more important. Volatility in the market is crazy right now so an active manager’s alpha is more important.’
She said Hanbury does not focus exclusively on past performance. ‘We look at the future, at what political events are forecasted, and an active approach is more suitable here.’
That is not to say the firm would not consider more passive investments in future if it thought there was good reason to do so. Dale concluded: ‘Our funds are very vanilla. We’re not trying to shoot the lights out; we’re just trying to provide constant growth tailored to a client’s risk profile.’