Profile: St James’s Place

St James’s Place Wealth Management (SJP) this week appointed Boston-based Loomis Sayles to manage its Investment Grade Corporate Bond fund and Majedie Asset Management to head up its UK Growth vehicle.

SJP works with almost 1,700 financial advisers who altogether manage assets worth £28bn. These IFAs rely on SJP to source the best fund management talent in the world through its collaboration with investment consultant Stamford Associates.

"One of the most challenging things about fund manager selection is that there is no standard model," said chief investment officer Chris Ralph. "There’s no magic formula. What one wants to see is an investment process which analysis suggests is repeatable."

Choosing a fund based on the manager’s performance must be based on long-term figures, Ralph continued.

"There are all manner of studies which show the best fund managers in a given period go on to perform very poorly, so very careful and intense scrutiny of information is required."

"We ask the fund manager to supply a huge amount of data on how the fund has been constructed in the past and how that has changed."

FE Trustnet includes a fund manager research section designed to allow private investors to pursue this strategy by examining the performance of individual fund managers over their career, splicing together their returns across different funds.

"It is essential to ensure that the manager is doing what they are contracted to do," said head of marketing Tony Dunk. "If a manager has pursued the same strategy for a long time and that suddenly changes it can set alarm bells ringing. That’s why Stamford Associates’ ongoing independent scrutiny is so valuable."

Once the investment committee at SJP has identified an approach that suits its needs, it will allocate a mandate to the manager, who is employed to run the money as a third-party contractor, for example Paul Boyne and Doug McGraw from Invesco Perpetual now manage the newly launched Global Equity Income fund.

"The principle behind this is that we don’t believe we can employ all the best fund managers in all the asset classes, and we don’t think anybody can," Ralph added.

He also says that choosing a manager requires a rigorous approach that must include a qualitative element designed to understand how managers have dealt with recent extreme market conditions.

"You need to look carefully at the quantitative dynamics of portfolio construction but also take a qualitative view, asking the managers what are their expectations of risk and return, and what their experience of the last few years of unusual markets has been."

Once SJP has chosen the managers it wants to work with, it will suggest a mix of funds according to the needs of its clients, blending exposure to asset classes and geographies to achieve the right results. Star manager Neil Woodford’s mandate for St James’s Place is therefore different from his own Invesco Perpetual fund.

"A balanced portfolio, for example, has an allocation to a variety of equities and bonds," said Ralph. "UK, global, Asian and global emerging market equities will feature in this mix, alongside corporate and government bonds."

"The more volatile equities will feature in a smaller proportion and we’ll mix corporate bonds with high yield and international bonds. There should also be an allocation to alternative assets including an absolute return fund managed by BlackRock, an alternative assets fund also managed by BlackRock, and property."

Once a mix of funds has been put together, keeping track of that mix as it grows requires significant resources.

"The challenge for any investor is being able to apply resources to what’s driving portfolio performance, not just reacting to events after they’ve happened," said Ralph. "There’s always a danger of overtrading, so our approach to building and running our portfolios is that once they’re established we only make changes if there is a clear and long-term change in the dynamics of risk and return."