Columbia Threadneedle is the winner of the Best Risk-Managed Range of Funds category for the 2024 Professional Adviser Awards. In the below interview, we delve into the firm’s investment process and adviser support.
How did the team navigate the difficult market conditions in 2023 and the growing adviser interest in multi-asset solutions?
The Universal range's diversification of styles, strategies and active management underpinned the good returns for our clients in 2023. Although equity and fixed income markets both ended the year in positive territory, 2023 panned out very differently from expectations. The accepted economic narrative was for a global recession to play out at some point in the year, as the monetary policy lags, following the significant rate rises from 2022, worked their way through the system. As we now know, the US economy surprised almost everyone and US equity markets delivered significant gains.
We had initially tactically shifted the portfolios to be more defensive minded, however as the data continued to improve, we added back into equities, particularly US Equities. The Japanese overweight position introduced in the first half of the year delivered the best returns through the year from a tactical perspective.
In fixed income, we were content to hold a larger than normal amount of duration in the portfolio. This positioning delivered strong gains in the final quarter as yields fell sharply. Stock selection also added decent gains through the year, with the global equity manager having a particularly strong year.
There has been a pronounced pick-up by advisers in the use of multi-asset and managed portfolio solutions (MPS) over recent years. Consumer Duty led some advisers to adapt their approach in favour of blending multi-asset funds in a centralised investment proposition. Asset price movements through 2022 also highlighted to some advisers that they could add more value to their clients in other areas of the advice process. The reduction in capital gains allowances and potential increase in capital gains tax (CGT) rates by the new Labour government has encouraged some advisers to look away from managed portfolio services toward multi-asset funds.
What is key to your investment process with the range?
The key to a successful investment process is multi-fold: diversification, conviction, implementation and lastly fees.
We look to combine long-term fundamentally driven macro views with shorter term behaviourally driven views through strategic and tactical asset allocation. We also blend different investment styles together, meaning bottom-up stock picking returns are not driven solely by one sector, factor or geographical region at a portfolio level. We blend quantitatively driven processes alongside fundamentally driven processes. Where we do not diversify is across liquidity spectrums. The Universal range offers daily liquidity and our portfolio holdings reflect this.
The investment framework we have built for the Universal funds allows us to express our views within the portfolio in a controlled manner, whilst still delivering meaningful gains to our investors. When it comes to conviction, there must also be humility and self-reflection to understand that, when your investment thesis is not playing out how you would expect, you need the discipline to cut positions to minimise losses.
Implementation is key to maximising returns for investors whilst minimising costs and maintaining liquidity. The portfolios predominantly hold individual equities and bonds, allowing for stock selection benefits, which have been a great source of added value for the funds since inception. Shorter term tactical views are typically implemented through futures contracts due to cost efficiencies.
Occasionally we want to add some convexity into the portfolios to allow for a range of potential outcomes. In these instances, we would typically use options, delivering protection in the case of a market selloff, whilst maintaining upside potential.
By capping the OCF of the Universal MAP range at 0.29%, we have ensured that clients have the ability to choose an actively managed solution without worrying about the cost.
How has your work with advisers informed how the range is managed?
Understanding advisers' needs has played a critical part in the design of the fund range. A successful product must meet multiple objectives, not just performance expectations.
Regulatory changes have had a marked influence over how asset management companies work with advice firms. With the longstanding relationships built with financial advisers over several decades we were able to design a product that would fit smoothly into the advice process. Key features required include risk rating, running a full range of funds, maintaining liquidity, minimising complexity and being low cost.
As a company we need to offer constant support, fund updates, macro views, webinars etc. we have also gone one stage further and offer technical training for free.
The Universal fund range is risk rated by most of the key risk rating agencies. However, we were clear from the start that we wanted to control and be responsible for our own portfolio construction. As such we do not use anyone else's strategic asset allocation.
We originally started with three funds: Cautious, Balanced and Growth. The success of these funds allowed us to broaden the range to include Adventurous, Defensive and Income, covering most client risk profiles.
We offer daily liquidity across our fund range, and this means that we limit ourselves to investing only in highly liquid assets. We have all seen the problems that occur when funds gate redemptions, which is typically down to a mismatch between the liquidity terms of the fund and the underlying assets.
Assets, strategies or processes that are complex can frequently make for a great sales story and, as long as these work well there are few questions. However, there will always be a period that these will underperform and explaining something complex to a typical investor rarely ends well. As such we have tried to keep everything as understandable as possible, eschewing complexity in favour of traditional, well thought out, active investment management.
Cost is potentially the factor that has had the most influence on advised solutions post-RDR. This was one of the key reasons for launching the fund range, offering active management at a passive price point.
