SWIP’s James Clunie (pictured right) has hit out at criticism over the group’s decision to switch to an "optimised Alpha" strategy, claiming much of the disapproval has come from sources who have completely misunderstood the move. 

Much of the national press has accused SWIP of potentially leaving investors out of pocket by planning to move some of its equity portfolios from an active to a passive position while markets are depressed.

However Clunie, investment director for equities at the group, says anyone who makes this claim has got the wrong end of the stick.

"We are not going to trackers," he stated. "We are going to optimised Alpha, which is still active. I often get a phone call saying: 'You’ve got an active position here, so that’s going to vanish.' No, not necessarily. Optimised Alpha is just lower risk." 

"Tracker means 'that’s your benchmark, that’s what you’re going to follow'. Optimised Alpha means you’ve got bets around the benchmark." 

Luke Hickmore, who co-manages the SWIP Strategic Bond fund, added: "Optimised Alpha has a lower Alpha than the existing portfolios, but it’s a very different approach to a passive one." 

"With something like an ETF, you’re replicating an index. With optimised Alpha, the team that James [Clunie] manages is taking its best ideas and is making sure they are reflected in the fund’s active positions."

"That’s the same way you manage an active fund, except you don’t need as much Alpha because they reduce the targets." 

One national newspaper also accused SWIP of destabilising the market by selling out of enormous positions when valuations were already low – but Clunie says they were wrong about this as well. 

"We’re actually buying as much as we are selling, so these reports were factually incorrect as well. I know what they are getting at…if you do a lot of trading when market liquidity is low, it’s going to harm us. But we’re not constrained time-wise, we didn’t drive the market lower." 

Francis Ghiloni, director of distribution and client management at SWIP, explained the reasoning behind the group’s switch to an optimised Alpha strategy: "Initially, the £54bn of equities we managed was split into three groups: high Alpha, low-risk Alpha and passives." 

"We found that one of the major trends among our clients in high-Alpha funds over the past year was to move out of the so-called middle ground – they wanted to either move to higher-risk products that aimed to outperform their benchmark by at least 3 per cent and which they were willing to pay the higher price for, or they wanted to be in something more passive." 

"What they didn’t want to do was get charged active prices for passive performance."

Around £18bn is being moved into the optimised Alpha bracket, which already held about £20bn, with £7bn remaining in high-Alpha funds. SWIP has not yet released the names of the funds that will be changing their approach.
 
Clunie heads up five funds including SWIP UK Opportunities and Scot Wid UK Select Growth.

Performance of manager vs peer group composite over 3-yrs

 

Source: FE Analytics

Over five years, the manager has lost 1.34 per cent, but has still beaten his peer group by 11.72 per cent. He has also significantly outperformed over one and three years.