Sarasin and partners

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January 2013 Sarasin & Partners LLP Fund of Funds Sam Jeffries, Oliver Tucker, Lucy Empson

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Transcript of Sarasin and partners

Page 1: Sarasin and partners

January 2013

Sarasin & Partners LLP

Fund of Funds

Sam Jeffries, Oliver Tucker, Lucy Empson

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Contents

10 Myths of Fund Selection

Sarasin & Partners’ Investment Principles

Conclusions

“ We aim to identify the main traps and pitfalls in fund selection whilst inspiring

conviction in active management ”

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Sarasin & Partners: Introduction

Funds under management: £12.4bn*

A partnership: the local management team

owns 40% of the company

Bank Sarasin, one of Switzerland’s leading

private banks, owns the remainder

Established fund research capability with over

£1bn of assets

Detailed client reporting packages

*Source: Sarasin & Partners LLP as at 31.12.12 (updated quarterly)

** Source: Sarasin & Partners LLP as at 31.12.12 (updated bi-annually); exchange rate used as at 31.12.12 is CHF:GBP = 0.6778

“A Well-Balanced and Growing Client Base”

AUM (£bn)**

29.9

32.5

21.0 16.6

Private Clients

Charities

Institutional Clients

Investment Funds

12.412.1

11.7

12.5

9.4

7.07.1

6.15.4

4.0

1.9

0

2

4

6

8

10

12

14

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

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Our Fund of Funds

Source: Sarasin & Partners LLP, updated to 31.12.12

Sarasin Global Diversified Fund of Funds

50% equity neutral

From the left: Sam Jeffries, David Vickers, Lucy Empson, Oliver Tucker

The team researches the mutual fund universe,

seeking “best ideas”, whilst leveraging Sarasin

& Partners’ longstanding macroeconomic

capability to build Fund of Fund portfolios

Sarasin Global Equity Fund of Funds

100% equity neutral

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10 Myths of Fund Selection

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Myth 1. Highest rated funds are the best

Source: Morey, 2003

Information Ratio: Alpha / Volatility of Alpha (i.e. tracking error)

Over 80% of funds underperform in the 3 years following their first 5 star

rating from Morningstar

Buying a fund because it has a good rating does not guarantee outperformance

Info

rma

tio

n R

atio

Pre rating performance

Post rating performance

Total net underperformance

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Myth 2. Back the most experienced managers

Source: Agarwal, Discoll, Gabaix & Laibson, 2009

There is a sweet spot!

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Myth 3. Flagship funds are safe havens

Most sectors are dominated by behemoth multi-billion pound funds which often

struggle to outperform as FuM increases

Flagship fund FuM and alpha over time

Re

lati

ve

Re

turn

(%

)

Source: Lipper

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Ignoring bottom quartile managers means you often miss great buying opportunities

Bottom quartile might represent a style being out of favour, rather than poor skill

Performance relative to FTSE All Share

Myth 4. Never buy a bottom quartile fund

Fund

Peer Group

1st 1st

4th

Source: Lipper

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Myth 5. Risk adjusted ratios alone are enough

Risk and return tend to move in the inverse of each other

This means commonly used risk adjusted ratios such as the Information Ratio

should not be solely relied upon

Share price - LHS

Volatility (risk) - RHS

Re

turn

(%

)

Vo

latility

(%)

Source: Lipper

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Overweights

Passive

Fund A Fund B

Myth 6. All fund managers are equally active

40% different to

benchmark:

Limited potential to

outperform

80% different to

benchmark:

Double the potential to

outperform

Underweights

The further a fund is from the benchmark, the greater the chance of outperforming

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Myth 7. Diversification is always good

Source: Brearley, 1969

The benefits of diversification diminish significantly beyond 15 stocks and are

virtually nil beyond 50 stocks

Concentrated portfolios can have a higher chance of outperforming

% of Single Stock Risk

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Myth 8. Outperforming managers must be skilled

After fees benchmark huggers underperform on a relative basis

Relative performance vs. FTSE All Share

Negative skew

Lucky or skilled?

Source: Lipper

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Myth 9. Rely on past performance

Source: Moss, 2009

How sure can we be that this top performer is the most skilled?

With 3 years of past performance you have only 17% probability

To get 100% probability, you need 160 years of past performance!

Top performer

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Myth 10. Stock pickers should outperform in all markets

Increasing dispersion = potential to outperform

Scenario 1 – no distinction between stocks – better to go passive

Scenario 2 – higher chance of outperforming – better to go active

Scenario 1 Scenario 2

Stock A

Stock A

Stock B Stock B Market Market

Source: Sarasin & Partners LLP

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1992 1997 2002 2007 2012

Increased dispersion is good for stock pickers

Myth 10. Stock pickers should outperform in all markets

Source: Lipper

Dispersion calculated as difference between bottom of first quartile and top of fourth quartile

Re

lative

Re

turn

/ D

isp

ers

ion

(%

)

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Sarasin & Partners’ Investment Principles

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E.g. Baring Europe Select +2%

Run by Nick Williams who has spent many years running small cap funds

Our Principles

Active Portfolio

Experienced Manager

Forward Looking

buy managers who are truly expressing a

view, otherwise go passive

leverage off experience through market

cycles, particularly given similar fees are

paid, regardless of manager experience

exploit Sarasin’s macroeconomic output to

identify key trends

E.g. Ardevora UK Equity +8.5%

In a 150/50 structure, providing us more opportunity to outperform

E.g. Invesco Japanese Equity Core +14%

Bought pre-elections as macro team viewed LDP victory as significant

Source: Lipper; performance numbers are since purchase and relative to the funds’ respective benchmarks

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1992 1997 2002 2007 2012

Increased dispersion is good for stock pickers

Now is the time for active management… R

ela

tive

Re

turn

/ D

isp

ers

ion

(%

)

?

Source: Lipper

Dispersion calculated as difference between bottom of first quartile and top of fourth quartile

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Sarasin & Partners’ Fund of Funds provide you with:

Our established fund research capability with over £1bn assets

The longstanding macroeconomic expertise of the firm

The diversification, flexibility and choice investing in Fund of Funds brings

Detailed client reporting package

And DT risk rated solutions:

3

7

5

“Over 90% of Sarasin

Global Diversified Fund of

Funds is different from our

major peers”

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Our Fund of Funds

Source: Sarasin & Partners LLP, updated to 31.12.12

Sarasin Global Diversified Fund of Funds

50% equity neutral

From the left: Sam Jeffries, David Vickers, Lucy Empson, Oliver Tucker

The team researches the mutual fund universe,

seeking “best ideas”, whilst leveraging Sarasin

& Partners’ longstanding macroeconomic

capability to build Fund of Fund portfolios

Sarasin Global Equity Fund of Funds

100% equity neutral

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Appendix

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Qualitative

Liquidity

Cost

Management

Quantitative

Attribution

Risk

Technicals

A verification process

Our Process

Consistency

Screening

Risk / Return

Compensation

Macroeconomic

Output

Scenario Analysis

Idea Generation Due Diligence

We leverage off Sarasin’s

longstanding

macroeconomic

capability utilising a core

satellite approach

Portfolio Construction

Process

Firm

Turnover

Style

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Sarasin Global Diversified Fund of Funds

Key Holdings

Equity

Threadneedle American Extended Alpha

Cartesian Enhanced Alpha

Findlay Park American

Bonds

LGIM All Stocks Gilt Index

Insight Long Dated Corporate Bond

Alternatives

Bluecrest AllBlue

Third Point Offshore

Asset Allocation as at 31st December 2012

Source: Sarasin & Partners LLP

Currency

Sterling 70.7%

Dollar 27%

Euro 2.3%

Yen 0%

Objective:

25% MSCI AC World LC

25% MSCI AC World GBP Hedged

40% BofA Merrill Lynch Broad Market

10% Cash

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Sarasin Global Equity Fund of Funds

Key Equity Holdings

UK

Cartesian Enhanced Alpha

US

Findlay Park American

GAM North American

Europe

Baring Europe Select

Japan

Polar Capital Japan

Source: Sarasin & Partners LLP

Asset Allocation as at 31st December 2012

Currency

Sterling 59%

Dollar 35%

Euro 6%

Yen 0%

Objective:

50% MSCI AC World LC

50% MSCI AC World GBP Hedged

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Who to contact at Sarasin & Partners

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This document has been issued by Sarasin & Partners LLP, a limited liability partnership registered in England and Wales with registered number

329859 whose registered address is Juxon House, 100 St Paul's Churchyard, London EC4M 8BU. Sarasin & Partners LLP is authorised and

regulated by the UK Financial Services Authority. This seminar is intended solely for information purposes and as such is not a solicitation, or an

offer to buy or sell any security, or a recommendation to make an investment based on the contents of this presentation. Neither Sarasin &

Partners LLP nor Sarasin Investment Funds Limited provide investment or tax advice. If you are in any doubt you should seek independent advice

as to whether an investment is suitable for you prior to undertaking investment activity.

Information provided in this presentation does not constitute independent investment research or advice. In this seminar we refer to the Sarasin

Fund of Funds OEIC and its sub-funds (the "Funds"), and not those funds of any competitors. There may be other funds and/or products in the

wider market which meet your investment objectives and requirements. The information on which the document is based has been obtained from

sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or

warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice.

There are risks involved with investing in a collective investment scheme and each Fund carries its own risks. This notice does not explain all the

risks involved in investing in the Funds and you should therefore ensure before you invest in the Funds, that you read the current prospectus and

relevant key investor information document(s) which contain further information regarding the Funds and the applicable risk warnings. If in any

doubt, you should consult your financial advisor.

Please note that the value of shares and the income from them can fall as well as rise and you may not get back the amount originally invested.

This can be as a result of market movements and also of variations in the exchange rates between currencies. When calculating performance, all

the costs charged to the fund were included to give the net performance. Performance was calculated on the basis of net asset values (NAV) and

net dividends reinvested. Additional commissions, costs and taxes charged at the investor level have a negative impact of performance. Tax

treatment depends on the individual circumstances of each person and may be subject to changes in the future.

The Funds will invest in other collective investment schemes including both regulated and unregulated collective investment schemes (such as

hedge funds). Investment in unregulated collective investment schemes carries additional risks as such schemes may not be under the regulation

of a competent regulatory authority, may use leverage and may carry increased liquidity risks.

As an investor in other collective investment schemes, a Fund will bear its proportion of expenses of such collective investment schemes., and will

assume any specific risks associated with such collective investment schemes. These fees will be in addition to the management fees and other

expenses which a Fund bears directly with its own operations. For efficient portfolio management, the Funds may also invest in derivatives. The

value of these investments may fluctuate significantly, but the overall intention of the use of derivative techniques is to reduce volatility of returns.

Sarasin & Partners LLP and/or any other member of the Bank Sarasin group accepts no liability or responsibility whatsoever for any consequential

loss of any kind arising out of the use of this document or any part of its contents. For your protection, telephone calls may be recorded.

© 2013 Sarasin & Partners LLP – all rights reserved

This document can only be distributed or reproduced with permission from Sarasin & Partners LLP.

Please contact [email protected]

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Sarasin & Partners LLP

Juxon House

100 St Paul's Churchyard

London EC4M 8BU

Telephone +44 (0)20 7038 7000

Fax +44 (0) 20 7038 6850