It’s a crowded market for discretionary investment management, and it’s clear that one size does not fit all. Sue Whitbread talks to Craig Harper (pictured) and Andrew Holder of Mole Valley Asset Management, about what makes their relationship-based business appeal to advisers and their clients.
What’s different about MVAM? How do you add value for clients?
CH: I’d sum it up by saying we’re all about relationships, communication and the clear acceptance of levels of risk. We’re a small, flexible and highly-experienced team who have a shared vision that ordinary people in our community need help and support in taking control of their savings and investment. For them it’s about education, housing, weddings and security. Not about the mysterious details of investment. So, we reach out into the community, to advisers and their clients, to say we are the experienced professionals who can help you make your own informed decisions about how you look after your money. That trust and communication is based on our own expertise. It’s making institutional-level investment expertise available to the ordinary person. We have an extremely experienced fund management team running bespoke portfolios which are completely individual and tailored to the needs of each client. The relationship part of our business is extremely important to us. We strongly believe that providing direct contact for advisers and their clients with our portfolio managers is key to our ability to judge the perceived risk and expected returns of each of our clients and to invest accordingly. This is where we feel that the City has, by and large, failed its clients. The big institutions are simply too detached from their end clients to serve their needs effectively. We do things differently, and our clients appreciate it.
We add value by our understanding of risk. We see our main difference as being the fact that we are willing to accept risk – we don’t run away from it. Whilst experience is certainly not the be all and end all when it comes to investment management, it does help you to understand risk far better. Between us, our team has been through many market crashes over the years and we firmly believe that as managers you’ve got to take a risk to get better returns than the market over the longer term. You have to keep that risk on when things are bad too. Most people we see have investments that are over-diversified. There are just too many holdings. We often see clients holding 25 different funds – with maybe five different UK funds. We believe that you can diversify very effectively with a focused portfolio, as long as you own individual shares which have totally different risks.
So how do you manage risk? Can you talk us briefly through your approach to managing money?
We control risk mainly by the number of shares we invest in. All our portfolios have a target number of holdings. The easiest way to increase or decrease risk within them is by changing the number of holdings. We select these holdings to target the individual risk profile of each client. Each individual portfolio typically holds 20 to 30 stocks.
AH –When it comes to our investment process, we are completely discretionary. For stock selection and asset allocation, we take a top-down view to gauge where we feel the best opportunities should lie. The great thing is that we can invest where we want. We can invest in bonds and we do – although we have limited exposure right now as we don’t think they’re very attractive. We also use investment trusts where we feel they offer good value. It’s a discount play which we generally operate for clients with moderate risk profiles because investment trusts offer underlying diversification.
MVAM is a relatively young firm and small in size. Is this an asset or a disadvantage?
It’s a big asset in one respect. Formerly, I ran a team with £5bn under management. In that scenario, it’s difficult to buy even large-cap stocks you want because liquidity is a problem. Here we currently have assets under management of £25m and can buy what we want. We invest across the market spectrum and have flexibility to invest in the smallest stocks including AIM stocks. In the IHT space for example, our competitors which also offer products which advisers can use to help clients to minimise IHT liabilities, are much larger than us. They have to own 20 to 30 percent of a stock for it to be meaningful in their portfolios. If their position goes wrong they can’t get out. Because of our size, we can get out of any share if we want to, and can do so without moving the price. There are few liquidity constraints for our investors. This flexibility we have gives us a huge advantage when it comes to performance.
This is the big advantage that our discrete portfolios have over pooled funds. Improvements in technology now mean we can run discretionary portfolios on an institutional-type basis at lower cost to the client.
Are there particular areas of strength at Mole Valley which you think advisers should be looking at?
Yes, our AIM IHT fund is proving popular with advisers as part of their estate planning work. We use our focused investment approach here too, holding just 20 stocks. It’s enough to gain diversification as they are all in different sectors. For the IHT fund, the fee is one percent plus VAT which puts us at the bottom end of the cost structure. The target is to keep those stocks for a year and then we rebalance. We expect turnover to remain very low but if something goes wrong we can exit quickly. When we get to £25m investment in this fund we will stop taking new money because of the liquidity. We’re not just in it for the money. We want the clients to make the money and get the performance. At that point, we’ll have over a million pounds in each share which should just about ensure we can sell out of a position if we need to. It also means we can go into smaller AIM shares if the balance sheet fits what we’re trying to do. We look for the long-term growth stories, carrying out top-down analysis for our themes as well as bottom-up analysis and we like to meet the management whenever possible. In the first twelve months since June 2016, the composite return for investors in our AIM IHT fund has been excellent, up 73% over the period.
How do you go about building relationships with advisers?
We do this face-to-face at the beginning, then develop that relationship with clear and transparent communications. We provide monthly reports for clients, showing them what’s been happening in their portfolio so there’s never a surprise for them. They can see exactly what is going on at all times. We even have an app that they can use to help with this. We make sure the client has a relationship with their money. Every client and every adviser we use can contact their investment manager if they need to – whenever they want. That flexibility simply doesn’t exist with larger fund managers. It’s making institutional level investment expertise available to the ordinary person. And that’s where so many advisers and their clients miss out. We’re very happy to come out and visit advisers – bringing the show to them if that’s what they’d like. We will usually visit the adviser first, and then they’ll come to our offices to do their due diligence as we form a working relationship.
Bespoke portfolio management usually comes with a relatively hefty price tag – does this apply at MVAM?
We operate two types of portfolios – bespoke discretionary portfolios and model portfolios, like the IHT funds. Overall, we keep the costs to a minimum. On our bespoke portfolios’ it’s 1% including VAT. We also have a performance fee (15%) which kicks in after a hurdle rate of 5% is achieved (net of management fees). What we are trying to do is align our interests with the clients’. We realise that fees in the City are too high and we want performance to be the main factor.
What’s next for Mole Valley? What are your plans?
Short term, we want to grow our assets under management to £100m. We will continue to use technology to allow clients to have their own portfolio – rather than the collective approach where the manager has no idea about the client whose money they are managing.
Our business is about building long term relationships – with advisers and their clients. It’s about people rather than money. We’re using all the investment management rigour you would expect from a large firm. We use all the same systems. But we’re doing it for the individual client whose interests and specific requirements are paramount. No marble pillars, no massive committees, we’re just people who love what we do.
About Craig Harper and Andrew Holder
Craig Harper has 30 years’ experience in portfolio management, having previously held the position as Head of Process at SG Asset Management with a team responsible for over £5bn in European equities. Prior to that Craig was Head of Equities for Daiwa SBI, and Head of European Equities at First State Asset Management/Colonial Mutual. Craig holds a BSc degree in Economic Geography and a Securities Institute Diploma.
Andrew Holder joined MVAM from Berenberg Capital Markets LLC in the USA, where he was CEO, responsible for building out the North American operations for Berenberg Bank. Prior to that, Andrew was a senior member of the specialist equity sales team and the European Healthcare team at JPMorgan. He held a similar role at SG Cowen between 2000 and 2005, having started his investment career at Cazenove & Co in 1996. He is a qualified Chartered Accountant and a Fellow of the Chartered Institute for Securities & Investment.
For more information visit the MVAM website HERE