Job Curtis has bought St James’s Place for the City of London investment trust, saying the wealth manager can survive the recent controversy and continue to deliver growth for shareholders
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A recent Sunday Times article criticised the aggressive sales tactics and incentive schemes used by St James’s Place, which has £109.3bn in funds under management.
However, Curtis – who has been building up a position in the stock over the past nine months – is relatively unconcerned about the impact of this negative press, saying investors need to put it in perspective.
“When I go and meet private wealth managers, they always ask about it,” he said. “It has got a lot of publicity recently about its sales practices. But for me, the bigger picture is that a generation ago everybody was in defined benefit pension schemes, while now it’s all defined contribution and at the end of it people end up with a pot of money that they have to invest.
“And yeah, some people are very happy to go on the Hargreaves [Lansdown] website or one of the platforms and do it themselves, but actually a lot of people out there don’t have the confidence with their hard-earned savings. They don’t have the time and, you know, want their hand held.”
Another criticism that has been levelled at St James’s Place is the high fees it charges, the compounding impact of which eat away at the end investor’s returns over the long term.
For example, SJP UK High Income has ongoing charges of 1.66 per cent, compared with 0.82 per cent from Threadneedle UK Equity Income, which is run by the same manager, Richard Colwell, and 0.75 per cent from Woodford Equity Income, run by its former manager Neil Woodford.
Data from FE Analytics shows that during the time Woodford ran the mandate for both SJP UK High Income and Invesco High Income, which has ongoing charges of 1.12 per cent, between October 2001 and March 2014, the former made 233.27 per cent and the latter made 297.13 per cent. However, both figures are still much higher than the 143.27 per cent return made by the FTSE All Share.
Performance of funds vs index
Source: FE Analytics
St James’s Place has questioned the accuracy of such comparisons in the past, pointing out the figures for its funds include the cost of ongoing advice and platform fees, while those of the managers’ other mandates do not.
However, Curtis said he doesn’t think there is anything wrong with paying up for good advice.
“And St James’s Place persisted with that end of the market, that sort of high-end advice, which a lot of people vacated, and they have been remarkably successful," he continued.
“Certainly with what I’ve seen of the charges, they’re not out of line with what you get if you pay for advice.
“The fact that the clients have persistency, it’s very high and clients don’t move, it would imply that people are quite satisfied with the service they’re getting.”
St James’s Place also levies an early withdrawal charge of up to 6 per cent.
The wealth manager is down by almost 16 per cent from its peak this year, but Curtis said the underlying business remains in good shape. He pointed out that while growth in funds under management was down in the second quarter, it still increased by £2.5bn.
“On an annualised basis, that’s like a sort of 9 per cent growth in funds under management and a lot of companies in financial services would give their arm for that type of growth,” he explained.
“I appreciate it’s a very controversial stock, but it does look good relative to the growth its achieving. And they have so-called funds under gestation for the first six years when they don’t take a fee and so as more than six years lapse, the fee income and cash generation should improve.”
He added: “The fact that Schroders and Lloyds have set up a venture to tackle the same space I think shows that some of the other operators are waking up to what I think is a structural growth market.”
St James’s Place is a popular stock among fund managers, with 10 funds from the Investment Association universe holding it in their top-10.
Data from FE Analytics shows the City of London investment trust has made 273.28 per cent over the past 20 years, compared with 229.99 per cent from the IT UK Equity Income sector and 183.73 per cent from the FTSE All Share.
Performance of trust vs sector and index over 20yrs
Source: FE Analytics
It is yielding 4.53 per cent and has raised its dividend for every one of the past 53 years.
The trust is currently 11 per cent geared and has ongoing charges of 0.39 per cent. It is on a premium of 1.97 per cent compared with 1.74 and 1.68 per cent from its one- and three-year averages.