Talking his way through his career as fund manager, then analyst, journalist and his current role of investment director, his experiences, Mould says, have given him the eagle eyes that helped him create three portfolios that the UK Sipp provider launched last November in its first salvo aimed at what it dubs the low return world.
“I have gained a fair degree of experience and I have seen more than one cycle. I spend my time looking for patterns that I have seen previously, as much as anything else,” he says.
“Ever since I worked as a fund manager in 1991, I have leaned into the teeth of an equity bear market, towards the dark side.”
Creating the Investment Guidance Service risk-rated global asset exchange traded fund (ETF) portfolios covering cautious, balanced and adventurous remits, involved working with data provider Morningstar.
“We did not want to do anything that was unduly complicated and we wanted it to be extremely cost effective,” he says.
Keeping it simple
Simplicity and cost were key to the potential appeal of the portfolios that were launched against a backdrop of a low returns, interest rates and inflation, he says.
“Whether it’s stamp duty or dealing fees, they are all there for a reason, but equally for the investor, client and customer, these costs all chip away at returns,” he says.
The appeal of ETFs was that they offered a much wider range of options in terms of the asset classes and indices, he argues.
“We felt we achieved a good balance between flexibility, cost and liquidity. Liquidity is important so that a service can trade when it wants, at the price it wants, in the size that it wants. That is the real definition of a liquidity.”
“While liquidity cannot be guaranteed,” he says, “at least with an ETF it is a tradeable instrument. The aim is that these are long-term portfolios and not there to flip around and change on too regular a basis.”
A quarterly investment committee assesses how the portfolios are doing and how the individual ETFs are performing. Morningstar will review strategic allocation once a year.
Volatile environment
“We do not want to get sucked into second guessing the markets because, particularly in this volatile environment, you are just as likely to make a mess of it as you are to get it right. Also, to make sure there is not overtrading and keeping the expenses down.”
He says MorningStar has great data- bases on all type of collective investments and it has also done a lot of work on risk and reward analysis and model portfolios, which has been back-tested over a very long period of time.
“That was a great resource to tap into but, equally, we gave them very strict criteria as to the ETFs we wanted to use.”
Once AJ Bell came up with the list of 16 trackers, from which the three individual portfolios were drawn, they were individually stress-tested, as were the ultimate portfolio allocations.
“We got Morningstar to do more back-testing of specific portfolios to make sure they could do what we claimed they could. We gave Morningstar strict criteria, which probably drove its testers potty, but there were certain things that we insisted on.”
The most fundamental stipulations were that all the investment vehicles in the portfolio were Ucits, ETFs, sterling-priced and London-listed.
“We then looked at minimum assets under management of about £100m ($141m, €124m) just to try and give us a fair shot at there being decent liquidity, even if things did get sticky.
“We lent towards physical or direct replication over synthetic strategies. It was not mandatory but we have ended up with 16 physical ones.”
