Asset Allocator often spends time discussing the finer points of fund selection and what makes a good manager.
But in a portfolio of 20 or 30 funds, how much of a difference can each one really make?
We recently sat down with Gam's head of wealth management Arun Shetty and chief multi-asset investment strategist Julian Howard. They told us that they’ve long since called time on manager meetings, only to pay through the nose and see it fail.
“Fifteen years ago, client conversations would spend 80 per cent of the time focusing on the stock picks of a US equity manager, and it was absolutely pointless,” said Howard.
“It was a completely pointless use of the client's time, whereas now we should spend all of the time on asset allocation and the client's usability, but somehow it [fund selection] is seen as more interesting or exotic or appealing to the intellect.”
What does their asset allocation framework look like, then?
Well, we at Asset Allocator often while away the small hours of the morning searching for the investment proposition with the largest US equity exposure, and in Gam we have come across a strong contender.
Around 36 per cent of their balanced proposition is centralised around US equities, which is a pretty significant sum when compared to our allocator average of 17 per cent. In fact Gam's exposure to the US is the second-largest in our database.
“It is expensive, yes, but the return on equity is great,” Howard said.
“You get the technology exposure that other markets don't deliver. You get the better quality of management as well that other markets simply don't have. And you get that stability – that old adage, ‘never bet against the US’, has always worked very well for us.”
Within that, however, they’ve spent the past six months rejigging exposure towards a more representative whole – adding an S&P 400 tracker to get a specific mid-cap tilt within portfolios.
Such hefty weightings to the US must be funded from somewhere, though, and Shetty told us they’ve had pretty much zero exposure to UK equities since the Brexit vote of 2016.
Gam said that its client base typically already hold property and operating businesses in the UK, so any additional gilts or equities would be depending too heavily on one single economy, which he added, faces its own challenges regardless.
“Without going into the whole UK-bashing narrative, the challenges facing this country and this economy are absolutely enormous, and I don't see how the pound is going to stage some miraculous recovery over the next few years, at least,” said Shetty.
As we’ve noted, Gam are mostly loath to own equity fund managers, but they do save active budget for the realm of alternatives.
Gam deploys alts ‘discerningly’, given that they both remember the financial crash of 2008 when such funds did not work when they were needed most.
Nowadays, they like catastrophe bond managers, who, unlike index funds, can buy up paper at depressed prices during downturns.
