“Our bond holdings are split into UK and international. We don’t have any gilts, we like corporates instead. We have a preference for full-duration UK corporate bond funds, particularly in our lower-risk portfolios. “In our mid to higher-risk portfolios, we have some US high yield, which we believe can continue to deliver, and there are still opportunities there, particularly in energy. “We are concerned about liquidity, and these positions are not without risk as we move into a rate-hiking cycle. We like to have some defined return-type investments such as structured products, so when the equity market is not playing ball we can still protect capital.
”One major holding in fixed income is the in-house Brooks Macdonald Defensive Capital Fund, which has structured products in it as well as bonds. Outside of the two main asset classes, property is an important part of the portfolios, but Webster-Smith explains he has liquidity concerns there. “The key with property, particularly with model portfolios, is being sure you can get out if you need to,” he says. “The property team is looking at various opportunities, including some global Reit trackers. We do still like the asset class but we are very wary. “We had been holding the F&C Commercial Property Trust; there was a shareholder dispute three years ago that saw it fall to a good discount. It subsequently moved to a good premium and we sold out.”
Hedge funds clipped
The fallout from the credit crisis has shaken Webster-Smith’s faith in hedge funds as an alternative investment option. “We have historically held hedge funds in our alternatives allocations and, more recently, convertibles. The issue with hedge funds is they were meant to be market-neutral but many lost money when markets have seen big falls in recent history, and there is more concern around cost now. Some of the costs are hard to justify, although things are changing slowly with that. ”Responding to regulatory developments is another big part of Webster-Smith’s job over the next few years.
“Mifid II will be huge, of course. We work with a lot of professional advisers and we are going to see more of the increase in outsourcing to wealth managers, as they will find it harder and harder to run portfolios. Mifid II will further define the roles of wealth manager and financial advisers. “A big focus for us related to this is investment in a new IT system and client portal. It is going to become crucial to improve technology and reporting to clients. There is no point in moaning about regulation, as it is not going to go away. If you embrace it and implement the right technology, it should be a good thing.”
