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How advisers invest: ‘We can’t know everything in every asset class and area’

EQ Investors head of investment Sophie Kennedy explains how impact investing has become the USP for the company’s offering to external advisers

Do you outsource investment management, keep it in-house or combine both approaches?
We offer financial planning and investment management, so we are all in-house. We have managed money for internal clients but one of the newest parts of the business is that we have started to manage money for external IFAs through our positive impact portfolios.

These portfolios have dual investment objectives to maximise financial returns and to maximise the positive impact they are having on society and the environment.

They were born out of demand; a lot of external IFAs are getting queries from their own clients on social and environmental issues.

Some of our peers do something similar, but we have a longer track record in the industry.

How advisers can capitalise on impact investing

What investment options do clients have?
We offer both model and bespoke portfolios. For the positive impact portfolios, we have an impact calculator so clients can measure the impact their portfolio is having on CO2 emissions, for example.

The impact is focused on equities as it is harder to attribute sustainable development goals to asset classes such as property.

We also have a best-ideas portfolio, which is an unconstrained  mandate to provide the best possible return for a given risk profile. We are not investing just in equities and bonds; we look at themes such as artificial intelligence, healthcare and biotech.

Finally, we have low-cost portfolios which are a play on asset allocation calls through trackers.

Overall, we are trying to be different. We are nimble and of the size that we can take advantage of smaller funds and newer markets.

How advisers invest: ‘It’s best to leave investment and stock picking to the experts’

Bespoke portfolios allow us to focus on what a client is interested in from a social and environmental perspective. If they are interested in people, we can invest in healthcare and biotech; if it’s the environment, we can invest in renewable energy.

We have a wider range of investments in the bespoke portfolios, including investment trusts and more niche investments, such as structured products.

How do you build portfolios?
We have a company-wide macro view; the model and bespoke portfolios all start from the same broad asset allocation. Then we take value and momentum data, which is a quant, and overlay that with qualitative aspects. For example, if UK equities are cheap, momentum is possible but we look at how well that data is capturing what is really happening. We do that across equities, bonds, property, alternatives and commodities. We use cash to some degree, but it has to be a tactical position to hold cash.

We then populate the portfolios with funds from buy lists available to our portfolio managers.

We appreciate that we can’t be specialists and know everything in every asset class and thematic area in order to invest directly, so we have access to the best fund managers in those areas and engage with them if we think they should be doing something differently, especially on the impact side. Model portfolios are tilted quarterly but we would make the decision to do it more frequently in special circumstances.

Bespoke portfolios are fully discretionary so we could tilt a portfolio much more quickly.

Company factfile

Date company established: 2014, following buyout of Truestone Asset Management

Assets under management: More than £800m

No of staff: 65

No of clients: Over 2,000

No of platforms used: Three, plus positive impact portfolios offered to external IFAs via eight platforms

DFMs used: N/A

When would you remove funds in your portfolios?
Many portfolio managers have a hard sell if a manager leaves but it may be the case that we are happy with the decisions they have made. We monitor the situation to ensure they are achieving the job they set out to do. If there is a change in the investment themes, that is a real worry. If a UK value manager continues to underperform as we would expect, we would not worry – as long as we are not seeing them move to a growth strategy.

Do you use active and passive funds?
Our view is that active management is there to exploit inefficiencies in the market. If we are unable to do that, typically in the UK and US where these markets are so efficient and hard for fund managers to outperform, we would use passives. We have core exposure to the UK and US through passive trackers, then invest in active funds through satellite positions. We use thematic funds such as biotech, which are US-biased and typically invest in high-growth US firms. We wouldn’t just buy an active US manager; they have to be doing something different.

There is always the case that in a bull market, passives give you exposure for lower cost and they keep up with the market, but the concern is when we see a bear period and volatility.

Square Mile: Time to pass on passives?

What are the benefits of your investment management approach?
As it is all in-house, we are on hand to answer clients’ queries and that provides them with a great service. We can tailor communications and events to clients, which we do.

We look after all shapes and sizes of portfolio and our investment team is close to our advisers, who hold us to account. The benefit to clients of the positive impact portfolios is that we are able to align their investment with their own values. That is the key USP of offering our investment management to external IFAs.



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