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Investing with the stars: How Equilibrium builds its portfolios

For Equilibrium Asset Management, launching three of its own funds was integral to speeding up and smoothing out its investment process

Investing with the stars: How Equilibrium builds its portfolios

Equilibrium Asset Management managing partner Gaynor Rigby said launching its own funds in November last year created no conflicts of interest.

She says it simply improved the service’s efficiency. ‘When you appreciate how reactive we were with the old in-house models, you realise there’s no conflict. The process is the same; only the structure has changed.

‘We moved around £350 million in two weeks, leaving only pots with capital gains tax (CGT) issues in the models. It was a huge project with many staff hours spent. We anticipated more questions from clients, but it doesn’t seem to have been an issue for them at all.’

Helping hands

The new funds are three open-ended investment companies (Oeics) set up in a separate firm called Equilibrium Investment Management. Wilmslow-based Equilibrium still runs bespoke portfolios when required.

Rigby said it set up the Oeics because, as the firm’s assets grew, it increasingly encountered issues from investing in funds that closed to new assets. This made the models more uneven and harder to administer as some clients were invested fully in the closed funds, while alternatives had to be found for the others. The new Oeics help address this issue.

The in-house investment team takes an active approach to asset allocation and also likes to make small volatility trades where appropriate. This is also easier to do in Oeics.

Setting them up involved a 15-month project, which Rigby admitted to being one of the most challenging tasks she has faced at the firm. But she said it has also been one of the most satisfying, especially when she saw money moving seamlessly into the new funds.

Equilibrium’s management fees on the new funds are 0.25%. A typical ongoing cost on a £750,000 portfolio would be that 0.25%, plus a 1.25% advisory fee, 0.2% for the platform, and 0.55% for underlying fund charges.

Asian allocations

Equilibrium has made several recent changes to asset allocation. Partner and investment manager Mike Deverell said: ‘We invested cash into short-dated fixed interest, which we think will offer low-risk but above-cash returns. We increased property exposure after reducing longer-dated fixed interest. We reduced large cap exposure in the UK in favour of smaller companies. And we reduced US equity exposure in favour of more Indian equities.’

The Equilibrium Balanced Portfolio outperformed the Investment Association Mixed Investment 20% to 60% Shares sector in 2017 and 2015, but trailed it in 2016.

Deverell said the portfolio’s overweights to Japan and Asia added value. Two particularly good performers were the Baillie Gifford Japanese fund, managed by Citywire-AA rated duo Sarah Whitley and Matthew Brett; and the Schroder Asian Alpha Plus fund, run by Citywire + rated Matthew Dobbs.

According to Citywire Discovery, Whitley and Brett have achieved first decile risk-adjusted performance over one, five and seven years in the Equity-Japan sector; and second decile over three years.

‘We have done well from property funds, particularly when we sold them the day of the EU referendum result,’ added Deverell. ‘We then bought some back in September 2016, benefiting from upward reprices. Our use of autocall structured products has also helped produce equity-like returns with less volatility.’

Targeted returns

Investments in the funds are around 65% active and 35% passive. The main detractor from performance was being cautious and underweight equity in 2016. But Deverell said the team is still cautious and focused on risk-adjusted return.

‘We’re not particularly bothered about relative performance,’ he said. ‘We’re trying to achieve target returns above inflation, without taking excess risk. Even though we’ve been very cautious recently, that has not stopped us achieving the target returns.’

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4/97 in Equity - Japan (Performance over 3 years) Average Total Return: 58.51%
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12/145 in Equity - Asia Pacific Excluding Japan (Performance over 3 years) Average Total Return: 67.58%
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