For Ian Ormiston, manager of the Old Mutual Europe Smaller Companies fund at Old Mutual Global Investors, fears that research costs would spike after Mifid II have passed – at least for now.
The European regulation, which now requires asset managers to disclose the way they pay for research separately from trading costs, has not had any immediate effect on Ormiston in the way he selects brokers.
However, he fears research costs might increase when brokerage firms decide on how they set costs in the post-Mifid II world.
Concerns have already been raised over what Mifid II will mean for small cap companies research, which already appears to be limited and underesourced.
However, Ormiston says: “We have been able to contract for exactly what we received [as research] before Mifid II started and costs actually haven’t changed for us.
“We were worried there might be more immediate effect so that we were going to be more selective on what we would use but our suppliers have been very rational so far.
“But in the long term there is a risk that actually some of these [costs] are unsustainable. Let’s see what happens when we negotiate next year.”
Ormiston has been at the helm of the €480m (£424m) fund since launch in 2014, managing to reach the current size from the €36m initially seeded by the OMGI multi-asset team.
Having run European and UK equities for 20 years, Ormiston notes how much investment research has changed.
He says: “The whole financial services had this culture where fund mangers sat at their desks all day picking up the phone and someone is just talking their ear off.
“Your job is almost to keep that person on the phone as long as possible, so is the value in the time or in the information?
“We don’t do any phone time at all, we do focused meetings with analysts, they are here for 45 minutes and it is all recorded. On their side hopefully the management will recognise that good analysts are in demand.”
At a time when regulation is pushing towards greater transparency, Ormiston says the asset management industry has still plenty of room to improve.
He says there is a need to engage more with clients and improve communication.
Ormiston says: “I agree on one side about clarity of fees but we also need to explain what the purpose of all this is.
“As an industry we do have enough products but they are just not well explained. It irritates me that people say we don’t reach out to millenials, but we don’t reach out to anybody.
“I am 46, I am not that close to retirement, I should be trying to accumulate a pension pot for my family to benefit from when I am older but you never hear fund managers saying that..It is for all of us to say it.”
Ormiston was poached by OMGI in 2014 to set up the European Smaller Companies fund from rival Ignis Asset Management after he built and managed a similar mandate there for seven years.
The fund manager currently invests in all the funds he runs, gold, silver, and has some exposure to Richard Buxton’s OMGI UK Alpha fund.
He prefers not to invest in the UK smaller company funds at the firm to stay diversified since they follow a very similar approach to his fund.
The OMGI European Smaller Companies fund is a stock-driven fund with 50 holdings with an equal weighting of 2 per cent. As with many of the OMGI funds, Ormiston’s fund is not a fashion follower and currently has a higher bias towards growth stocks than value names compared with a year ago.
Ormiston says the move was not driven by doubts about the European economy, but by high valuations, meaning that “opportunities are not as obvious,” he says.
Among the growth names, Ormiston cites some of the niche firms he owns such as Belgian technology firm Barco.
He says: “Barco is a small Belgium firm but they are the world leading manufacturers of cinema projectors. They did a joint venture with a Chinese company so they’ve just reorganised it to go globally. They are now developing sound to go with laser projectors, which is the next wave of upgrades.
“It is not about European recovery, but a good niche growth company which we expect to grow whether Europe carries on or not.”
The European market had “a good start” to the year with better than expected fundamentals, Ormiston says. Tax cuts in the US could also benefit many companies in Europe but he remains sceptical this would actually create an investment boom for them.
He says: “What could derail Europe is bond yields changing direction but they haven’t yet so until we are in a bond bull market. I don’t think anyone will worry about it.”
To date, the Old Mutual Europe Smaller Companies fund has returned 88.3 per cent versus the 75.2 per cent for the IA European Smaller Companies sector over three years, according to FE.
2014 – present Old Mutual Global Investors fund manager
2007-2014 Ignis Asset Management, European equities portfolio manager
2004 – 2007 Singer & Friedlander Investment Management, head of European equity team
2000 – 2004 Singer & Friedlander Investment Management, European investment manager
1998 – 2000 Asahi Life Investment Europe, head of European equities
1994 – 1998 Asahi Life Investment Europe, investment manager in the UK and European equity team