London-based Devonshire Wealth Management uses three discretionary fund managers (DFMs): Brooks Macdonald, Smith & Williamson and Mountstone Partners. They are used to manage client portfolios greater than £500,000 on a bespoke basis. Meanwhile, LGT Vestra has built in-house model portfolios for Devonshire to use with clients who have smaller portfolios.
Managing director Martin Cawley said he is ‘pretty agnostic’ on the active versus passive debate. He does, though, like the fact Vestra and some of the DFMs blend in passive funds where they think an active approach does not add value. ‘This provides exposure to a relevant sector, while keeping costs down,’ Cawley said.
Devonshire does not have thematic views. But Cawley said its DFMs are currently running themes around infrastructure and healthcare.
Clients have only recently been moved over from advisory model portfolios constructed by Morningstar to the Vestra model portfolios. One of the top funds in the LGT Vestra balanced portfolio is Lindsell Train UK Equity (see charts, below, for the fund's performance), managed by Citywire AA-rated Nick Train.
Since its 2006 launch, the fund has grown to £4.8 billion in assets under management. Cawley considers it a key part of clients’ UK equity allocation. He likes the manager’s unconventional approach to portfolio construction, pointing out the concentrated fund differs markedly from its UK equity market benchmark.
‘Train considers himself a value investor. He works off his own process, involving “intrinsic value”, to find stocks he considers undervalued,’ Cawley said. ‘Moreover, Lindsell Train is a genuine long-term investor and the fund has exceptionally low turnover.’
He added: ‘Train has an exceptional long-term track record, in terms of both consistency and outperformance.’ Indeed, on an annualised basis the fund has returned 12.1% since its launch, according to Trustnet.
Devonshire generally uses the FTSE 100 index as a rough point-of-comparison for portfolio performance with clients. Cawley said this is because it is ‘clear, understandable and familiar’ to UK investors.
‘People watch the 6pm news and see whether the FTSE 100 has gone up or down,’ he said. ‘I tell most clients it’s not a strictly accurate benchmark.
‘But I can discuss with them the level of risk they are taking relative to that index.’
Devonshire also has access to Asset Risk Consulting’s data through FE Analytics. Cawley said this helps it benchmark individual portfolio performance more accurately than using the FTSE 100.
The firm has a lot of faith in its DFMs, but uses eValue for its risk profiling tool. ‘We wanted a risk profiler that was independent, rather than tied to a particular DFM,’ said director Nick Townsend. ‘We wanted one that allows DFMs to map their portfolios over to the risk profiles, which eValue does well.’
Devonshire avoids multi-manager funds, as the firm’s advisers do not like their inflexibility. ‘The advantage our solution has over multi-manager funds is we utilise clients’ capital gains tax allowance as the investment progresses,’ said Townsend. ‘We like to have the flexibility to sell down elements of a portfolio, rather than the whole fund itself.’