Making Contrarian Choices With ETFs

December 13, 2012

Fund managers are turning to ETFs for their portfolios. Rebecca Hampson talks to co-founder of SCM Private, Alan Miller.


[This article previously appeared on our sister site,]


Most recent media coverage of the European exchange-traded fund sector has focused on market growth, product structures, price wars and developing regulation. However, behind the scenes a new trend is emerging. Many fund managers are setting up businesses with portfolios made up exclusively of ETFs and exchange-traded commodities.

Investment management house SCM Private was set up in 2009 using only ETFs and ETCs with the aim of building a “progressive and honest investment management organisation”.

The firm was founded by Alan Miller and his wife, Gina Miller. This year assets under management will reach £100 million from its choice of three portfolios.

If experience across the funds business is anything to go by, it seems investors are in safe hands. Alan Miller is amongst London’s most high-profile managers, having started one of Britain’s first hedge funds in 1997. Miller also worked at Gartmore, Jupiter and New Star (where he reportedly amassed a £30 million fortune from the sizeable fees generated by the firm’s hedge fund range).

More recently, though, Miller has switched to passively managed ETFs, which are at the opposite end of the fund management fee scale, while continuing to manage asset allocation actively.

“Our approach is to manage portfolios of index funds actively in order to combine the best of passive and active investment,” Miller told

Miller also seems now to have abandoned his hedge fund roots for good. When SCM was set up in 2009, the firm charged a 5 percent, hedge fund-type fee on the performance generated by its portfolios. But two years later the performance fee was scrapped.

The Choice Of Three

Investors in SCM can choose from only three portfolios: the bond, absolute and long-term return funds.

The bond portfolio invests in developed and emerging market government, corporate and inflation-linked fixed income ETFs.

The absolute portfolio works like an absolute return fund. It can consist of all equities, all bonds or all cash and aims to provide strong absolute returns whilst trying to reduce downside risk. But there’s no short exposure to protect against market falls: the portfolio doesn’t invest in short (inverse) ETFs.

And the long-term portfolio acts like a traditional pension fund, with a broad diversification of asset classes which change as circumstances do. It has a long-term bias to real assets, which include equities, and the portfolio’s target is based on a composite of equity and bond returns.

Miller says that a combination of ETFs and ETCs in three portfolios ensures “we don’t fall into the trap of investing in anything that is simply cheap but with no return.”

And the returns of all three have been encouraging. The absolute fund has seen 33.9 percent returns since inception on 8 June 2009, compared with its benchmark, the IMA absolute return sector, which has returned 13.2 percent. The long-term fund has gained 40.8 percent since its inception on 8 June 2009, compared with a 33.8 percent return from the IMA mixed investment 40-85 percent shares sector return. Finally, the bond fund has seen 14.0 percent returns since its inception on 1 June 2011, while the IMA global bond sector has returned 5.4 percent over the same time period.



Want to learn more about smart-beta ETFs? Check out our smart-beta guide, essentials library and ETF screener!


'EFA,' the developed-market fund that excludes North America, led inflows on Thursday, June 25. Total U.S.-listed ETF assets meanwhile fell to $2.162 trillion.

'EFA' paced iShares' issuer-leading inflows on Thursday, June 25, as total U.S.-listed ETF assets dipped to $2.162 trillion.


By Drew Voros

Why is putting a client’s interest first not the industry standard?

By Matt Hougan

Contrarian plays, bad investing and authenticity in social media dominated the day.

By Dave Nadig

While they bring added risk, they can bring added returns.

By Olly Ludwig

The ETF world is a hotbed of interesting new ideas, as this week’s launches make clear.


By Invesco PowerShares

Smart beta appears to be poised for further growth.

By Dorsey Wright & Associates LLC

So many sectors, how do you choose? A quick guide from Dorsey Wright.

By Nasdaq Global Indexes

Bond exposure or bond performance? Only defined maturity indexes provide the latter.