Fortune favours the active - Rathbones · passive investing. Only ‘good’ active management...

Investment managers with the flexibility to follow their convictions should outperform in an uncertain world

Fortune favours the active

May 2017 For professional advisers

David CoombsHead of multi–asset investments

Contents

3 Foreword Active versus passive investing

4 What is active management? Defining the type of investing that could prevail in the years ahead

5 The key elements of active investing About risk, smart beta and value

7 Is active better suited to an uncertain world? The long-term trends affecting the investment landscape

10 A flexible future Why active management is the way forward

Fortune favours the activeInvestment managers with the flexibility to follow their convictions should outperform in an uncertain world

Fortune favours the active | May 2017 rathbones.com 3

In this paper, we explore how active managers can reclaim the high ground and why active investing may be better suited to the challenges of the years ahead, just as passive has worked well over the past decade.

Recent years have been challenging for active investing. The broad political consensus that took hold in the early 1990s and the easy monetary policy that central banks have run since the financial crisis have suited passive investing.

With political harmony and highly correlated financial markets being supported by liquidity from central banks, passive investment made a lot of sense — the rising tide did indeed lift all boats. Add in the drive towards lower charges and there was a good case for avoiding active management. But then came 2016.

We do not defend active managers for their past performance. However, the events of 2016 have changed the investment landscape for the next decade or more. I unashamedly believe that when it comes to multi–asset portfolios, active management is the best approach for the years ahead.

Allocate capital carefullyWith active investing, discernment is key: capital is allocated carefully and returns will reflect this. In contrast, passive investing is like a strange version of the popular television programme Dragons’ Den. Every entrepreneur that goes in Evan Davis’s lift gets money, irrespective of its quality or the investment returns it is likely to offer.

The key point, however, is that active investing must offer investors more than passive investing. Only ‘good’ active management makes sense, though. Active managers need to reclaim their space and redefine how they work to make superior returns more achievable.

A myth has arisen that passive investing is low risk and, more importantly, inherently lower risk than active investing. We believe this statement is not true. Passive investing involves the risk of the particular index or benchmark — no more, no less.

It gives only index returns (before fees) for index levels of risk. For investors who understand the relationship between investment risk and return, this is far from compelling. Meanwhile, good active management can achieve:— the same returns as passive, but for less risk, or— superior returns for similar risk.

I hope you find this paper thought provoking and look forward to continuing the conversation about the opportunities and challenges of investing actively through multi-asset portfolios.

David CoombsHead of multi–asset investments

David CoombsDavid Coombs is head of multi–asset investments at Rathbones. He is the lead manager for the Rathbones Multi–Asset Portfolio Funds and the offshore equivalents domiciled in Luxembourg, and co–manager for the Rathbones Strategic Bond Fund. David sits on the strategic asset allocation and investment executive committees. He joined Rathbones in 2007.

Foreword

4 rathbones.com Fortune favours the active | May 2017

What is active management?

Active management has developed a serious image problem in recent years, resulting from accepting too many constraints, and then delivering mediocre investment performance (figure 1). These returns are rightly criticised by advisers and the media as providing poor value for money. The solution is ‘good’ active management. But what does this mean?

In an ideal world, active management in a multi–asset context should involve:— a real return objective over a period of

seven years or more— an appropriate level of risk— a professional investor with the

freedom to follow their convictions.For example, for a growth strategy,

the objective could be a 5% real return over seven years or more. This target is based on knowing the long–term real return from UK equities (traditionally the asset class associated with the higher risk/return engine of portfolio growth) has been 4–5%, depending on the period reviewed.

However, and this is crucial, these index–type returns can be achieved with lower levels of risk. Equally, for clients who want higher returns, this could be achieved without taking more risk than the index.

Investors want active management, yet often the first thing they do is limit their investment manager’s scope to achieve active–type returns. This may seem controversial to highlight, but if you limit the parameters within which an investment manager can operate, you are clearly influencing their investment decisions and limiting their performance.

Measuring performanceIs three years too short to allow a manager’s conviction to play out? If they are ‘wrong’ in year one, ‘luck’ or market timing may be far too important over this period. The industry has come to accept three years as the standard timeframe to measure performance. Is this right or just arbitrary? Does it restrict a manager’s ability to take sufficient risk to achieve the superior returns required?

In addition, investors often set their manager a modest outperformance target versus an index-based benchmark, encouraging them to take marginal relative positions against it over a relatively short time horizon. With the risk of ‘bad luck’ affecting performance so high in such a short period, are they really likely to back their investment convictions fully and take significant active positions against their benchmark?

Furthermore, a shorter time horizon forces a manager to try to time the market and anticipate major rotations. Is this objective achievable with any consistency? Excessive restrictions encourage inconsistent outcomes and disappointment.

Constraining active managersFor those acting in a fiduciary capacity, seven years may be difficult to accept. What happens if your manager is way off the mark over a shorter period? When would it be right to challenge their performance? Is the risk of under-performance too great to set such a long time horizon? Or is the relatively poor performance of many active managers a greater risk to the investment returns your advisers are trying to protect?

Trustees and their advisers tend to invest a great deal of time and thought into appointing an investment manager. The process can involve requests for detailed information on all aspects of the manager’s business, covering everything from risk management systems to the financial health of custodians.

Sometimes, it seems that little thought is given to the effect constraints may have on an investment manager, yet they will often have a significant impact on what they can achieve. If the appointment process has been rigorous, there should be greater trust in the manager’s ability to deliver appropriate investment returns.

Figure 1: Assessing active performanceMeasured together, active managers underperformed the broader equity markets in 2016, which were pushed and pulled by a variety of surprise political events.

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Introduction

If investors believe active management is appropriate to generate the returns required, they should give the investment manager:— sufficient time to allow their

convictions to play out— a clear ‘real’ objective and not an

artificial mathematical problem— the flexibility to take genuinely

active positions.

Key points


The key elements of active investing

Now that we have defined active management, we explore the different styles investment managers use. Their approaches are based on a variety of accepted views about how financial markets perform and what active managers can achieve. We believe today’s investment environment requires a review of these commonly held views.

Avoid the losers (negative screening)When we think of active management, we often think of investors trying to find stocks that will double or treble (or even the mythical ‘ten bagger’). Such returns are not impossible, but given insider trading legislation and the speed of communication, they have become rarer, particularly for large companies.

They are most likely when buying ‘bombed out’ stocks, such as the UK banks in the immediate aftermath of the financial crisis. However, investing at such times is extremely high risk as you rarely have sufficient information, making the risk–adjusted return far lower.

It may be more possible to find smaller companies that are under–researched or misunderstood due to the complexity of their business models. This situation may explain why most active managers in the UK equity market

tend to be structurally overweight mid– and small–cap companies.

For investment performance, it is far more important to avoid ‘torpedoes’ — think Enron, Nokia, RBS, Marconi and Research In Motion (Blackberry). Evading such horrors is what active management should achieve. This will help a manager to outperform and, more importantly, protect their clients’ capital.

So should active management be lower risk in absolute terms? Yes, if it is good. As with the ‘ten bagger’, the examples above are extreme, although all the companies mentioned were household names. However, we could list many more companies that have not imploded, but where the share price has flatlined for years or continued to fall.

Away from equity markets, avoiding defaults in corporate bonds is arguably even more important given they are meant to be in the less risky part of a portfolio. This is due to the asymmetric risk of a limited return based on the interest payment, but potential for 100% capital loss if the company fails.

Negative screening is vital when actively managing investments. It has a huge part to play and, in the hands of a skilled active manager, is very effective on many levels. It is less glamorous than

‘search for a star’, but far more important in terms of performance.

Is cheap value? Having looked at avoiding the losers, what are some of the ways investors can try to pick the winners? For example, the investment community regularly talks about the growth and value styles of investing.

Most investors want attractive levels of capital growth, or income, or both. In an ideal world, we would like the income to grow, at least in real terms. Therefore, are we not all growth investors? Clients rarely ask us to avoid growth as they only want value.

If value means ‘cheap’, then there is clearly a problem. Something that is cheap is not necessarily good value and, if it is rubbish, it can get much cheaper. Value must relate to something of reasonable quality.

Investing is a straightforward activity. Investors buy equities or bonds that they believe are good quality and will provide either growth or an attractive level of income. They try not to overpay and seek to buy securities when they have fallen over short periods due to other investors selling at the wrong time.

There are many definitions and opinions as to what constitutes value, and the answer is different for every company (even those in the same sector). It is better to be pragmatic and, if

Figure 2: Measuring valueAmazon’s valuation increased substantially at the end of 2014 before falling back down but the company’s share price continued to rise throughout the period.


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Investment approach

Today’s conditions require a review of some conventional views:— focusing on an investment style,

such as ‘value’ or ‘growth’ may no longer be relevant

— smart beta is usually expressed through a passive vehicle but has an active element in the design

— passive investing can be more risky than active investing in certain circumstances.

Key points


Investment approach

you have a long time horizon, buy a small initial position in the company even if it is a bit expensive. The best investments can look expensive for years, even as they continue to outperform (figure 2).

Judging value in a company’s share price is difficult. Getting it right can add significant value. An active manager with enough time can afford to take more short–term risk. A skilled investment professional should miss fewer growth opportunities because they can afford for a stock to fall after they have bought it as they have time to see it recover.

Is style relevant?Defining an investment style can lead to problems. For example, imagine buying a new car in August and, come the first frost of winter, it will not start. You call the dealership only to be told that you should not expect it to start in cold weather because it is a convertible. The weather does not suit the style of the car.

Then imagine you are an investor in the US stock market and ‘value’ outperforms ‘growth’ for five years out of six. Are you happy for your growth manager who outperforms the growth index to underperform the broad market for those five years (despite taking full fees) because the market did not suit their style?

A simple definition of growth is something that grows — anything else just stagnates or contracts. There are different rates of growth and you would expect a higher–growth company to be more expensive because there is more potential to achieve a return on your investment more quickly.

Companies with predictable levels of growth year after year may also be more expensive due to their consistency. Those that offer consistent growth with low levels of debt are often referred to as ‘quality’ companies.

Rathbones seeks to identify companies that will grow and provide a good return on our capital investment. In addition, to generate higher returns, we may try to find ‘cheaper’ companies that are stagnating or contracting, but may return to growth due to either internal or external changes (turnaround or recovery stocks). If they fail to return to growth, then they may become value

traps and lose money. But we are all growth investors.

We are wary of style–based strategies. There is no substitute for being patient (active does not mean activity) and allocating capital to companies that can provide sustained growth over the long term. An investment strategy that adapts and evolves in the face of change is not drifting in style.

What about smart beta?One area that has been growing in popularity over the past few years is smart beta. It is the passive investment sector’s answer to the charge that it exposes investors to all companies, even where some are lower quality.

An investment that moves completely in line with another can be described as ‘beta 1’ — they move in tandem. For example, a FTSE 100 Index tracker fund should be beta 1 with the index. It isn’t due to fees and other practical issues around execution, but it should be close enough.

If you invest in all 100 stocks, you get the good with the bad. What if you could screen out the 20 worst stocks? A fund that could do this would be described as smart beta — you only get the good bits of beta. But which are the ‘worst’ stocks? In some conditions, companies with poor financial structures perform better than their more solid peers.

There is no definitive definition of smart beta. It can be used to describe any investment strategy that is driven by formulaic constraints that alter the outcome of an index. This can be an industry–recognised index or one designed by an individual.

Although these strategies are expressed using passive investments, they are active. But they are not always smart. Given that the constraints are designed by humans who exhibit biases, opinions and logic, then active decisions are always taken when designing these strategies, even if they are rules–based and implemented by a ‘black box’.

Smart beta could include:— negative screening, such as excluding

all companies with a return on equity below 5%

— a derivatives overlay to enhance returns or reduce risk, such as an

accelerator or capital–guaranteed structured product

— quantitative strategies, including buy and sell signals triggered by data levels, such as price–to–book valuations or profit warnings

— positive screening, such as only including companies with a dividend yield greater than 4%

— personal thematic baskets, such as renewable energy.

What risks do our clients care about?Having explored how we identify active management, why do investors believe that passive investing removes risk? This mainly refers to the risk of underperformance — or relative risk. Is relative risk our clients’ biggest fear? We suspect not.

However, passive investing does ensure returns do not suffer the dual headwinds of higher charges and mediocre returns. In this respect, the competition from passive investment products has been helpful. Not only are they useful tools in their own right but they also challenge the active sector to ‘up its game’.

Removing the risk of under-performance is a legitimate objective. However, absolute losses or permanent losses of capital are the risk our clients feel the most. Passive investing does not mitigate this. For example, passive asset allocation strategies that are dominated by bonds, particularly in the lower–risk categories or for shorter time horizons, may well be riskier.

Absolute losses or permanent losses of capital are the risk our clients feel the most.


Is active better suited to an uncertain world?

Following an unprecedented period of stability over the past two decades, the world is changing. As well as the surprise votes for Brexit and Donald Trump, a raft of populist candidates have emerged on the right and left. The apparent failure of centrist politicians to address the causes and effects of the global financial crisis has created greater polarisation in politics and increased risks, such as protectionism.

In addition, the US Federal Reserve is now firmly into a cycle of raising interest rates, marking the beginning of the end of the ‘easy money’ years that have driven up asset prices. Yet it is not just political and macroeconomic uncertainty that we need to consider. Technological innovation means the world is changing at an unprecedented pace. In recent months alone, we have seen the following headlines:— Mark Carney highlighted that 15

million UK jobs could be at risk from robotics and artificial intelligence (December 2016)

— Google committed to powering all its data centres with alternative energy from 2017 (also December 2016): given the air–conditioning alone, this is a staggering commitment

— Tesla overtook Ford in terms of market capitalisation (April 2017): when the disruptor gets disrupted — Henry Ford’s use of mass–production techniques to launch his Model ‘T’ in 1908 was the key moment of disruption in the development of the motor car, so Tesla overtaking Ford is seismic.

Our April 2017 report on the investment impact of disruptive technologies considers four key areas of innovation: personalised medicine; automation and labour markets; alternative energy and electric vehicles; and blockchain and financial services. It shows how vulnerable these areas are to new technology.

In addition, climate change, demographics and the rise of ‘generation Z’ (children born since the millennium)

as they turn into adults are global dynamics that will impact how companies do business. The rate of development seems faster than ever, so the risk of complacency has never been higher. Some companies may disappear altogether unless they can evolve quickly.

The end of the political consensusLast year’s EU referendum result and the election of Donald Trump as US President trampled consensual thinking in capital cities across the developed world. In many cases, this led to very poor forecasting from prominent investment strategists and economists. Many active managers struggled and significantly underperformed.

Sharp corrections were expected in response to these ‘unimaginable’ results. After a day or two in the UK and an hour or so in the US, instead of a correction we saw quite the opposite — stock markets rose. However, we did see huge rotations in stocks and sectors, and increased volatility in all asset classes, even government bonds.

In both cases, the aftermath felt almost as dramatic as a correction. The impact on investment outcomes was huge and created much wider dispersions in returns from investment strategies. This is quite normal. Corrections happen because consensus is wrong and everyone is surprised at the same time.

When the consensus has been in place for 25 years, the surprise is much greater. This is certainly the case in politics. The UK and US could change direction in terms of government policies across fiscal, monetary and foreign affairs. This is clearly a multi–year event. However, the impact is not limited to these two countries.

Every politician around the world — both from the mainstream and those who were previously marginal — will be studying how the two campaigns succeeded and will adopt, to varying

degrees, similar policies and tactics. This may mean an end for the social–democratic orthodoxy in the EU, which has dominated thinking around regulation in the workplace. Or it could mean the end of austerity. The fact is that the number of possible outcomes is high, which is likely to have significant effects on investible assets.

In developing markets, increased protectionism could have a profound impact on economies that remain dependent on exports to richer countries. Most of these effects will be felt across borders, which will make geographic asset allocation key in government bond markets, but less so in equity markets.

That is because most investment portfolios are dominated by large companies, which in most cases have international earnings. As the period since the EU referendum has shown, the FTSE 100 Index is a particularly good example of this — UK sales account for less than 30% of revenues — as it has risen significantly so a decision to move under– or overweight the UK stock market because of UK–specific factors does not make sense.

The effects of major changes in fiscal and trade policies across the world will affect each company in a different way. Investors need to analyse these effects in aggregate and allocate capital at a company, rather than index level.

A changing environment

The unexpected happens frequently, and an active approach may be more suited to an uncertain world:— political surprises have been

creating periods of volatility in financial markets

— dominant companies can decline swiftly if they are disrupted by new technological innovations

— ageing populations and shifting consumer trends can bring rapid economic change.

Key points


The US market may be more self–contained, giving a higher overall percentage of domestic revenues, but the same point applies. Some companies might benefit from an increase in protectionism under President Trump, but there will also be losers.

Why politics mattersDespite the independence of central banks, governments make most of the decisions driving these factors. With a greater gap between the right and the left in politics, predictions of outcomes for financial markets become more difficult. Greater uncertainty is likely to result in more volatility for government bond markets and the fixed income assets that price off them, whether they be investment grade bonds, high yield, emerging debt, commercial property, finance leasing or peer–to–peer lending.

If volatility is going to be higher, then the need for active management is even greater. Uncertainty means it is difficult to rely on past data or events when investing. Volatility inevitably brings mispricing of risk, which can be used by talented active managers who have the time to realise the results of their conviction.

If volatility and risk are going to be higher, then the returns we seek should also be higher. In bond markets that means higher yields and therefore potential capital losses. Passive multi–asset strategies that include large allocations to fixed income or fixed

income–like asset classes should be viewed cautiously (figure 3).

It is not just political upheaval we need to concern ourselves with. There are other long–term trends we need to adapt to, which we set out below.

Disruptors versus the disruptedOn a company research visit just five years ago, Sony in Tokyo showed us the latest technologies its R&D experts were working on. One was the advanced CD for music. The situation seemed a little odd given Apple’s iPod had been released 11 years earlier (although it did not ‘go viral’ until 2004, because of its initial high price and Mac–only compatibility).

This is just one example of a large and very successful company getting it all wrong, misunderstanding trends in its market place and the pace of technological advancement. What about companies outside the technology sector? Look at Hoover, now owned by Techtronics in China. Remember them? Such was the power of its brand, Hoover became a noun and a verb. Then Dyson and the bagless vacuum cleaner appeared.

Who uses a Blackberry today? Think about how quickly flat televisions replaced the old boxes and how quickly we moved to 4K following the 3D disaster. Cameras are now for hobby photographers only thanks to the smart phone. As for film, Eastman Kodak (‘Kodak’) should cause passive investors sleepless nights (see box).

Natural forcesAs well as technology, there are other powerful forces affecting how we live, such as demographics, shifting consumer behaviour and climate change.

Ageing populationsThis is hardly new, but just because a theme has been around a while does not mean it is less important. We have been aware of the retirement schedule of the baby boomers for the past 30 years or so. To a certain extent, immigration has mitigated some of its impacts on developed economies. In the UK, immigration helped to maintain UK GDP growth near the top of international tables, for example. Does the EU referendum result put this growth in jeopardy, making the UK more like Japan?

Consumer behaviourFrom January 2018, the first babies born after the start of the millennium (generation Z) will become adults. This is the generation that has grown up with smart phones and globalisation. They use digital platforms for retail, entertainment and socialising and are far less concerned with national borders. This will present major challenges to companies in retail, media, technology and leisure to name but a few. It will be crucial for companies to adapt to this very different customer base.

What does this mean for the high street or terrestrial TV? What does it


Figure 3: Are government bonds risk–free?The long–term potential returns from UK gilts are no longer attractive, which suggests they may not be the best choice for investors looking to decrease portfolio risk.

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Passive multi–asset strategies that include large allocations to fixed income or fixed income–like asset classes should be viewed cautiously.


mean for restaurants, cinemas or airlines? Does it mean anything at all? Will they just morph into their parents? The risks here are high and businesses are likely to make many mistakes, whether through complacency, poor judgement or smarter, more flexible competitors.

Consider how quickly companies like Facebook and Google came out of nowhere to invent and dominate a sector, and become utility–like to generation Z. In the UK, online fashion retailer Asos has caused huge disruption to business models, albeit on a slightly smaller scale than Amazon.

Climate changeThis is not the place to debate the case for climate change. It is widely accepted that it is happening, although the position adopted by some commentators stifles more reasoned debate and can lead to poor decisions by governments and investors alike. Many climate change–friendly investment strategies and products have come and gone over the past 20 years.

Now seems a good time, however, to look at this issue for mainstream investors. Linking economic efficiency to environmentally sensitive technological developments provides an exciting opportunity.

As late as 1976, Kodak dominated the US photographic market with 90% of film sales and 85% of camera sales. However, the company underestimated the entrance of Japan’s Fujifilm to the US market, then missed the technological shift to digital cameras. It had developed the first digital camera of its kind in 1975, but dropped it because it feared it would threaten its photographic film business. In January 2012, Kodak filed for Chapter 11 bankruptcy protection, with its business all but destroyed (figure 4).

Innovation is constant, but given the pace of technological development, we face a period of disruption that is perhaps unprecedented. As Kodak shows, the impact on a company can be catastrophic. Passive investors run the risk of holding an index of canal operators just as the rail companies are about to take off.

It seems intuitive that a passive investor would invest in both. Yet the disruptors usually come from the unlisted universe. As a passive investor, you definitely get the disrupted, but not necessarily the disruptors. Other than through private equity vehicles, these are only available at or after the IPO. In addition, index investors only get exposure when the company is large enough to enter the index.

By successfully identifying the disruptors and the disrupted, an active manager can add significant value to a portfolio over all time periods. At a time of accelerating technological progress, it seems almost negligent to invest blindly.


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Figure 4: Out of focusKodak struggled to adapt to the shift to digital photography and was eventually forced to file for bankruptcy protection.


A flexible future

After several decades of political and economic stability, we face a more uncertain world as populist politics and game–changing policies such as protectionism re–emerge. Add in technological disruption and ‘natural forces’ and it makes less and less sense to constrain an investment manager’s decision making.

We believe the increasing popularity of passive investments will peak within the next few years. At some point, the market will realise the need to be more selective about allocating capital to companies based on potential returns but also protecting shareholder interests rather than the blunt approach of investing in a broad index based on market value.

Active investing requires time, patience and a willingness to take risk. To

be successful, we believe it is important to have the flexibility to invest with conviction and the patience to stay invested. At the same time, the focus should be on avoiding companies that will struggle to adapt to a modern world.

Look forwardAs part of our ongoing commitment to preserving and growing wealth, Rathbones is always looking for ways to remain at the forefront of the investment industry. We believe it is important to challenge the consensus and identify new threats and opportunities. It is one of the reasons why our real return strategies have delivered strong results (figure 5).

The chart and table demonstrate it is possible for an active strategy to achieve equity like real returns over the longer term with almost half of the risk.

Figure 5: Rathbone Strategic Growth PortfolioPerformance since inception (0 = May 2009)

Source: Datastream and Rathbones.Notes: Since inception Financial Express S–Class data as at 28/02/2017 net income reinvested. S–Class units/shares were launched on 1 October 2012. Calculations are based on the actual performance of the R–Class units/shares, adjusted for the appropriate S–class Annual Management Charge.

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Rathbone Strategic Growth Portfolio S Inc GTR in GB

-9.7 11.1 -7.9 170 238 8.8 0.8 7.1

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-16.3 20.3 -11.4 176 232 11.3 0.5 14.8

MSCI World GTR -18.2 14.7 -16.1 170 238 11.9 0.6 13.9

MSCI World in US -20.5 16.9 -20.5 38 56 8.6 0.4 13.7

Conclusion

— In a rapidly changing world, we believe it is important to give investment managers the freedom and flexibility to seek out opportunities and manage risks.

— Rathbones’ active approach to multi-asset investing and ongoing commitment to challenging conventional thinking has enabled us to achieve attractive, long-term real returns.

Key points


Important information

This document and the information within it does not constitute investment research or a research recommendation. Forecasts of future performance are not a reliable indicator of future performance.

The above information represents the current and historic views of Rathbones’ strategic asset allocation committee in terms of weighting of asset classes, and should not be classed as research, a prediction or projection of market conditions or returns, or of guidance to investors on structuring their investments.

The opinions expressed and models provided within this document and the statements made are, due to the dynamic nature of the items discussed, valid only at the point of being published and are subject to change without notice, and their accuracy and completeness cannot be guaranteed.

Figures shown above may be subject to rounding for illustrative purposes, and such rounding could have a material effect on asset weightings in the event that the proportions above were replicated by a potential investor.

Nothing in this document should be construed as a recommendation to purchase any product or service from any provider, shares or funds in any particular asset class or weighting, and you should always take appropriate independent advice from a professional, who has made an evaluation, at the point of investing.

The value of investments and the income generated by them can go down as well as up, as can the relative value and yields of different asset classes. Emerging or less mature markets or regimes may be volatile and subject to significant political and economic change. Hedge funds and other investment classes may not be subject to regulation or the protections afforded by the Financial Conduct Authority (FCA) or the Prudential Regulation Authority (PRA) regulatory regimes.

The asset allocation strategies included are provided as an indication of the benefits of strategic asset allocation and diversification in constructing a portfolio of investments, without provision of any views in terms of stock selection or fund selection.

Changes to the basis of taxation or currency exchange rates, and the effects they may have on investments are not taken into account. The process of strategic asset allocation should underpin a subsequent stock selection process. Rathbones produces these strategies as guidance to its investment managers in the construction of client portfolios, which the investment managers combine with the specific circumstances, needs and objectives of their client, and will vary the asset allocation accordingly to provide a bespoke asset allocation for that client.

The asset allocation strategies included should not be regarded as a benchmark or measure of performance for any client portfolio. Rathbones will not, by virtue of distribution of this document, be responsible to any person for providing the protections afforded to clients for advising on any investment, strategy or scheme of investments. Neither Rathbones nor any associated company, director, representative or employee accepts any liability whatsoever for errors of fact, errors or differences of opinion or for forecasts or estimates or for any direct or consequential loss arising from the use of or reliance on information contained in this document, provided that nothing in this document shall exclude or restrict any duty or liability which Rathbones may have to its clients under the rules of the FCA or the PRA.

We are covered by the Financial Services Compensation Scheme (FSCS). The FSCS can pay compensation to investors if a bank is unable to meet its financial obligations. For further information (including the amounts covered and the eligibility to

claim) please refer to the FSCS website fscs.org.uk or call 020 7892 7300 or 0800 678 1100.

Rathbone Investment Management International is the Registered Business Name of Rathbone Investment Management International Limited which is regulated by the Jersey Financial Services Commission. Registered office: 26 Esplanade, St. Helier, Jersey JE1 2RB. Company Registration No. 50503. Rathbone Investment Management International Limited is not authorised or regulated by the PRA or the FCA in the UK.

Rathbone Investment Management International Limited is not subject to the provisions of the UK Financial Services and Markets Act 2000 and the Financial Services Act 2012; and, investors entering into investment agreements with Rathbone Investment Management International Limited will not have the protections afforded by those Acts or the rules and regulations made under them, including the UK FSCS. This document is not intended as an offer or solicitation for the purchase or sale of any financial instrument by Rathbone Investment Management International Limited.

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Rathbone Brothers PLC

Rathbone Brothers PLC

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Fortune favours the active - Rathbones · passive investing. Only ‘good’ active management...

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