Mayfair boutique targets int’l investors with quant-assisted products
Newscape Capital Group, a Mayfair, London-based investment boutique founded in the global financial crisis year of 2008, has announced that it is actively setting out to target non-UK investors for the first time, having overhauled its business model and hired a new chief investment officer.
That new CIO is Charlie Morris, pictured, who came to Newscape a few months ago after 17 years with HSBC, where he headed up its Wealth Opportunities Fund, an absolute return fund that had US$3bn in assets under management at one point during his tenure.
For the moment, Newscape isn’t quite in the billion-US-dollar AUM league. But if Morris has his way, it will be soon.
The privately-held boutique manager currently has just three Dublin-domiciled UCITS funds – its Newscape Diversified Growth Fund, which Morris manages in addition to his CIO role and its Newscape Emerging Market Equity Fund.
The company also offers a managed portfolio service that gives investors a choice of five risk-graded, total return multi-asset portfolios, as well as an income portfolio option.
Finely-tuned, quant-aided diversity
Newscape’s investment concept, as Morris defines it, is to start with an eye on the various major stock indexes, but instead of mirroring them, selecting from them – with the help of quantitative programmes that permit a degree of fine-tuning that he says wouldn’t otherwise be possible – a carefully-diversified portfolio consisting of no more than 60 or 70 stocks that fit a particular investment goal, such as growth or income.
He describes his style as “long-only, opportunistic and value-oriented, with an absolute return objective”.
“We look to diversify a portfolio more than a basic index tracker fund normally would,” he explains, noting that each of the world’s major indexes has very distinct characteristics that reflect its home market – some are resources-heavy, others are weighted on the side of tech stocks, manufacturing, financials or property.
“Our portfolios are a concentration of the best of the stocks from the indexes that form the basis of the index trackers; and our quant systems allow us to fine tune individual portfolios to accommodate local market biases and/or preferences, investors’ choices of currencies and so on.”
For this added value, investors pay around in the region of 0.75% annual management fees (plus fees), depending on the share class that is appropriate. This can be compared with 0.45% to 0.05% of comparable index-tracking investment products.
Two int’l market drivers
According to Morris, two trends are driving Newscape towards the international market. One is the growing regulation of non-UK investment markets, as occurred in the UK with the adoption of the Retail Distribution Review’s package of rules that provide investors with greater transparency, which, Morris notes, has forced those selling investments to them to provide better value for money.
The other driver, he says, is the fact that the index-tracking portfolios now being promoted to investors in response to the new transparency don’t perform as well as a good, actively managed fund – of the kind Newscape claims to deliver.
Newscape’s move into the international market also comes as some experts are saying the shift into passive funds has begun to distort the listed securities markets, as equity valuations of many mediocre listed companies have soared simply because they’re in an index.
This phenomenon, these experts argue, leaves scope for discerning and experienced active managers to focus solely on companies they know to be exceptional.
“Take British Telecom, for example,” Morris says, referring to the FTSE 100 telecoms company, which is currently trading at around 281p a share, down from just above 490p a share in November 2015.
He’s ensconced in Newscape’s offices on Jermyn Street, the front door of which is, appropriately enough given the street’s history, framed on either side by menswear specialists Thomas Pink and Hackett.
“I’m sure it’ll still be here in 150 years’ time, and it’ll keep paying dividends,” Morris adds.
“But it’s basically got an ageing monopoly on our phone system, which is what you could say about pretty much every national phone carrier around the world. It’s not a growth area, its margins are under pressure. And yet it’s a FTSE 100 component company.
“So one of the advantages that we have is that because we don’t mirror the index, we can choose to hold some other shares instead – which we do.”
What Morris looks for in place of companies like BT, he adds, “are companies that are either really really strong, and which won’t see their profits crash and burn in a downturn, companies like Coca-Cola, Gillette, Johnson & Johnson – and growth stocks, which are typically sensitive to market cycles, but which, ideally, will tend to grow their way through a market correction rather than succumbing totally to it.”
All of this selection takes place against a backdrop of inflation-watching, because, Morris says, inflation is too key a factor to ignore, and “having a view on where the bond market is going is crucial”.
For now Newscape plans to handle international sales out of its London offices, where Tony Hicks heads up the company’s sales and distribution efforts. The company hasn’t appointed any sales representatives in any overseas centres yet, but is considering doing so eventually, according to Alex Tarver, head of marketing communications.
During its nine years as an investment manager, Newscape has seen two of its funds wound up – a Dynamic Rates & Currency Fund and an Absolute Bond Fund.
Morris insists that with him at the helm and with other new investment specialists occupying key roles – including that of senior portfolio manager, held since May 2016 by Fahad Hassan, pictured left, who came to Newscape in December, 2013 – it’s like a different company.
“The [new] team can use their combined knowledge and experience with latitude but within a risk-controlled framework,” he insists, arguing that this is what asset management boutiques like Newscape, when they get their model right, can do better than anyone.
Asked to name their favourite emerging market countries in which to invest at the moment, meanwhile, Morris and Hassan pause. Finally, they say they agree that India and Chile would top both their lists, but Morris says he’s “quite excited about Sri Lanka as well”, while Hassan disagrees. Sri Lanka, he argues, is too “frontier”. Greece would be his third choice, he finally says.