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Multi-manager interview: Bambos Hambi on putting volatility at the centre of his range

SLI head of fund-of-funds management Bambos Hambi explains to James Smith the importance of putting volatility at the centre of his fund range

Bambos Hambi has only been with Standard Life Investments for a short length of time but the multi-manager proposition he heads up has been a central part of the growth of the businesses assets under management. Hambi joined SLI in 2011 to head its fledgling MyFolio service and assets under management have grown to £2bn in the two-and-a-half years since launch.

A 30-year multi-manager veteran, with stints at Quilter, Rothschild, Insight and Gartmore under his belt, Hambi says this range puts risk at the centre of the process.

He says: “Our research among advisers and clients found that in the wake of the credit crunch, people felt many funds were too focused on return and not enough on risk. With the new challenges of the post-RDR world, we looked to address this with the MyFolio range, setting strict risk bands from one and five (branded I-V) and seeking the best possible return within that volatility.”

The MyFolio range sees Hambi and his team run five separate fund ranges, three growth and two income, with each range marked one to five to reflect their volatility.

Looking at the growth ranges, the MyFolio Market portfolios are largely made up of passives, with active managers used only for commercial property and high-yield bonds.

Hambi says there is no way to play bricks and mortar using passives and the average high-yield tracker has underperformed its benchmark over recent years, with a large part of the universe inaccessible.

The MyFolio Managed and Multi-Manager ranges have a more active approach to investment, with the MyFolio Managed range takes a fettered approach (focusing largely on SLI funds) and, while the MyFolio Multi-Manager range adopts a whole of market approach and SLI has similar offerings on the income side.

At the core of the proposition is SLI’s strategic asset allocation framework, which Hambi says is designed to remain constant for several years into the future.

“We have partnered with Barrie & Hibbert on this front, a world-leading expert in risk profiling and asset allocation, and review our positioning every quarter. They use something called an economic scenario generator to help inform our positions, which considers a huge number of variables, from interest rates, to volatility, to correlations, and how these could impact on the returns we can make within our risk parameters.”

Diversification is also key to the process, with 14 separate asset classes used across the range to achieve the optimum results for clients.

Looking at the framework, assets are split broadly into defensive or growth, with cash and sovereign/investment grade bonds in the former and everything else in the latter.

As expected, the lower-risk funds are more skewed towards defensive assets while the V graded portfolios are heavily invested in growth, primarily equities around the world.

Hambi says the team’s use of absolute return funds is a differentiating factor from many multi-asset peers, with the allocation initially focusing on SLI’s own flagship Global Absolute Return Strategies product.

More recently, Hambi has also introduced absolute bond vehicles to the mix, with a shift away from government debt the first major shift in the strategic framework.

“When we launched the funds, UK gilts were yielding 3-4 per cent but this dropped to a low of 1.4 per cent last year, meaning they would struggle to produce predicted returns. We therefore added some absolute return bond funds to portfolios, selling down £300m of government debt across the range. The one certain thing is that interest rates must go up at some point and these funds can still make positive returns in such an environment.”

While Hambi eliminated government debt on the higher-risk funds, the I and II ranked portfolios still have exposure, although the team has pared back duration by adding short-dated bond vehicles from Smith & Williamson and Fidelity.

On top of the core, the process also includes a more tactical element, with flexibility to move plus or minus 5 per cent on strategic allocations.
Hambi said these calls come from the 27-strong team behind SLI’s flagship multi-asset GARS fund, which has experts across asset classes.

With more than three decades of fund selection experience, Hambi’s role focuses on finding the right vehicles to express these strategic and tactical calls, and ultimately deliver the best possible return for each risk band.

His team continues to use the five Ps method honed at previous employers, analysing potential holdings for their philosophy, process, people, performance and price in that order.

“We spend the majority of time meeting managers and analysing how they will achieve their stated objectives. An advantage of our scale is being able to get the best price for investors, with our own assets plus Standard Life Wealth and the life office giving us considerable buying power.”

Looking across the range, Hambi said sustainable yield is a key theme, with equity income holdings even in the growth portfolios and overweights in investment-grade and high-yield credit.

“Our macro view is that economic growth will expand slowly, led by the US and China with ongoing uncertainty in Europe and China. Markets have already priced in successful actions by governments and central banks so our major fear is some kind of policy error.”

Hambi highlights credit growth in the US, as well as improving consumer spending and unemployment figures, and has been overweight American equities, although he reduced this pre-election.

“We added to our European weighting after the ECB delivered its ‘whatever it takes to protect the euro’ policy but have moved back into America this year as things have continued to improve.”

At present, the range is slightly overweight equities and this will increase, alongside additional exposure to property, if more macro certainty emerges this year.

Hambi has reduced exposure to high-yield slightly as he feels yield attractions are less pronounced but remains broadly positive with default rates expected to remain low.

Favoured funds on the equity side include Julie Dean’s Cazenove UK Opportunities, with Hambi a fan of the business cycle approach, and Aberdeen Emerging Markets, where he likes Hugh Young’s focus on quality and value.

On the fixed income side, he highlights Kames Investment Grade Bond, SLI Absolute Return Global Bond and Pimco Unconstrained Bond in the absolute return area.

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