Courtiers: Asset Allocation Is Key Driver Of Returns

Courtiers has grown to £500m AUA and uses ETFs as a low-cost and efficient way to invest clients’ capital

Reviewed by: Emma Smith
Edited by: Emma Smith

The digital age has seen the rise of online wealth managers offering fast, low-cost services. But traditional boutiques, such as Courtiers, find demand remains strong for personalised investment management with a focus on long-term goals.

Catering for higher net worth individuals with portfolios typically amounting to £600,000, Courtiers has the discretion to manage assets on behalf of customers. Caroline Shaw, chief investment officer (pictured), said the majority of clients prefer decisions to be made by a trusted adviser rather than taking investment choices into their own hands.

The firm, established in 1982, has a wealth management arm and a fund management division which will be expanded this year. The group runs £370 million within the fund range, while managing some £500 million of assets under advice.

Having joined the firm 15 years ago, Shaw has first-hand experience of customers wanting money managed with a long-term view, rather than leaving their investments to the care of advisers and investment experts who leave after a few years.

“We want to provide stability of management and processes,” she said.

Allocating Assets

“We recognise asset allocation is a key driver of returns,” Shaw said. “There’s lots of evidence to support the view that it generates 100 percent of returns over time.”

Courtier’s investment process starts by deciding which assets to invest in. Although the next step – executing the trade – is important, it is a secondary decision, explained Shaw. The group has the ability to invest through funds, shares, derivatives, structured products and passives such as exchange traded funds.

“We tend to passively track the U.S., Europe and UK markets,” Shaw said. “So while the asset allocation decision is active, the method is passive – it’s low-cost and, from a risk perspective, you know what you’re investing in, so we are able to monitor it closely.”

Shaw has also used an ETF for Latin America and emerging markets in the recent past. Outside of these core markets, however, Shaw tends to look for specialist investments. For example, in UK small cap stocks, Shaw said there is no efficient way to choose a passive instrument.

One of the main decisions when taking passive exposure is whether to use an ETF, tracker fund or a derivative.

“We have looked seriously at whether futures or ETFs would provide the best exposure,” she said.

Passive Decisions

For Courtiers, ETFs came onto the investment radar from mid-2000, only a few years after they first launched in the UK.

“Our first investment was in 2008, in U.S. high yield. It was fantastic; it had a stellar return,” said Shaw.

Since then, Shaw has seen fees come down significantly. However, the cost of tracker funds has also dropped by an even greater margin in some cases.

“We track the FTSE 350 using a Royal London fund, which we’ve chosen a fund because it’s 10 basispoints – that is still cheaper than the majority of ETFs,” said Shaw. “We first bought that three or four years ago. I think ETFs took a little time to react.”

Shaw noted that she has most recently assessed whether to hold a tracker fund or ETF to invest in the MSCI World index. Ultimately, more real-time data was available for the ETF, which is ready for use if a flow of money comes in.


Long-Term Approach


Long-term investing is a key focus for Courtiers. The premium charged for the intraday liquidity of an ETF can therefore seem superfluous on occasions.

“Most institutions and private clients are long-term investors, so intra-day liquidity doesn’t matter as much as it does, say, for day traders,” Shaw said.

The paradigm for investing over the long-term for an older demographic is changing, however. While older investors have typically opted for cash and bonds nearer to retirement, a rise in interest rates on the horizon could pose significant risks for bond investors.

“Research shows equities are actually lower risk than bonds over 11 years or more,” Shaw said.

Fees can also erode returns over time, which leaves low-cost vehicles such as ETFs suited to long-term investing in pensions.

“There’s been a quite a lot of research on trackers being appropriate for pensions because what you save on fees is [a] material [gain],” she said.

New Breed Of Wealth Manager

The rise of digital services has spawned the creation of a new low-cost type of wealth manager that invests on behalf of clients, which is posing a threat to some parts of the traditional investment management sector. Nutmeg is a case in point, offering a range of portfolios investing in low-cost ETFs.

Furthermore, following the retail distribution review, advice is now charged as an hourly fee or as a percentage of a client’s assets, and many clients are reluctant to be charged this way. However, Shaw said neither of these developments pose a significant threat to Courtiers’ business model.

“The thought of paying an upfront fee and ongoing costs – many people don’t want to do that, [as] they think they can invest themselves. But I still think Nutmeg won’t capture some of those people,” she said. “There is always a place for someone who wants a personal approach and that’s not going away.”