Philip Hanley says model portfolios offer Philip James Financial Services clients ‘much greater diversification and transparency’.
Philip James Financial Services has transformed its investment offering radically since 2011 by shifting away from multi-asset funds towards model portfolio services (MPS) and ethical funds.
When director Philip Hanley started the firm seven years ago, he used mainly multi-manager and multi-asset funds. However, he now uses outsourced MPS for around 80% of funds under advice; ethical funds for around 15% – but 30% for new business – and multi-asset funds for the remainder.
‘MPS offer such good value now, they tend to be our default option for new clients and on review if it is good value to move,’ says Hanley.
‘Before you could use one multi-asset fund to satisfy the client’s diversification needs. Now there’s such a raft of multi-asset funds, the due diligence on those has become [like picking individual funds]. MPS offer much greater diversification and transparency. Clients can see the 50 or 60 holdings in their portfolio.’
For non-ethical funds, the firm uses True Potential Portfolios for investments up to £100,000. ‘They perform well, are good value and have a spread of investments,’ says Hanley.
For larger investments, it uses MPS from Tatton Investment Management and Smith & Williamson.
‘We like Smith & Williamson as it keeps costs down by including investment trusts,’ says Hanley. ‘Tatton’s fee is about half the norm at 0.15% including VAT, so it is good value and performing well.’
Over the past six years, Hanley has seen increasing demand for ethical investments. This is partly because his online marketing strategy tends to attract younger, more ethically minded clientele, he says.
To meet this demand, Philip James became a member of the Ethical Investment Association and the UK Sustainable Investment Finance Association three years ago. ‘We advertise that online and it sets us apart,’ says Hanley.
For smaller ethical portfolios, he picks four or five individual funds. For larger ones, Hanley uses ethical MPS such as EQ Positive Impact and Tatton Ethical.
‘EQ Investors is highly specialised in ethical investing and is more expensive than Tatton, but it is better for clients who are particularly interested in understanding where their money is going and want a much broader spread of ethical funds,’ says Hanley.
‘EQ Investors also matches its portfolios to the UN’s sustainable development goals; and it has a personable fund manager, who is happy to talk to clients one to one.’
Strong track record
Two of the most common individual ethical funds Philip James uses are Janus Henderson Global Sustainable Equity, managed by Hamish Chamberlayne (see performance above); and Liontrust Sustainable Future Global Growth, managed by Citywire + rated Peter Michaelis and A-rated Simon Clements.
According to Citywire Discovery, Michaelis has recorded first-decile, risk-adjusted performance over one year and second- or third-decile over three, five and seven years in the global equity sector. ‘I started using Liontrust as I was looking to diversify globally as many other funds are UK-centric,’ says Hanley.
Chamberlayne has made second-decile returns over one year and fourth-decile returns over three years in the global equity sector. ‘Janus Henderson is a large global manager, which has been around for 20 years. It was early on the ethical scene and has maintained a good track record since then through [good and bad economic cycles],’ says Hanley.
Hanley also uses the Jupiter Ecology; Columbia Threadneedle UK Social Bond; and Kames Ethical Corporate Bond funds. These three have all had less successful performance, with lower-decile risk-adjusted returns over recent years.
‘There aren’t many bond funds that can give risk-lowering diversification in the ethical area – most ethical funds are equity based,’ said Hanley. ‘Jupiter Ecology has been around a long time and has a specific sustainability bent.’