Challenging fees
Brewin Dolphin’s current investment outlook is dominated by similar issues to most firms – higher volatility, low yield and looming rate hikes. But he says his inclination is to keep a steady hand and hold the course through turbulence, and focus on things they can control, such as fees. “We focus on the long term and have not made any short-term tactical calls based on macro events recently, he explains. “We remainin a low inflation environment and nominal returns are low.
“The sort of thing we are thinking about in this context is how we can get costs down. This is where we are using our scale to get cheaper components for our clients’ portfolios. It strikes me as completely unacceptable that with our £16bn in funds we should pay the same fees as a firm with, for example, £3bn.”
The issue of costs is pushing Ford to increasingly favour direct investments. “Direct equity is a really cost-effective way of getting into the market, because there are no management fees or wrapper fees.“ Another issue with using third-party funds, aside from cost, is getting guaranteed capacity when we have a large amount of money to invest. That is not always easy to find with public units, so approximately half of our investment is direct.”
Questioning liquidity
Liquidity is another issue at the top of Ford’s list of bug bears. “In the current environment, where suitability is focused on the medium to long term, it strikes me as odd that there is this concern that everything must be liquid overnight. “This means there could be an excess premium available on less liquid investments, so that is something we are exploring. There can also be cases where we are not selling, and neither are our clients, but a fund becomes ‘gated’ because other people are selling. That means we are providing liquidity to other investors but not having it ourselves, which is an issue.”
Within equities Ford is broadly more favourable to Europe than the US and cautious generally. “We are moderately underweight equities overall. The US rate rise is looming large, so we do not believe this is the time to be aggressive. We are taking a cautious stance,” he says. “The US looks fully valued at the moment, while Europe is showing value. The low inflation environment also means we remain drawn to income producing stocks, particular in the UK and Europe.”
