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Asset Allocation Research for UK Advisers

Multi-Asset Funds or MPS: the pros and cons

14/5/2025

 
A lunchbox representing Multi-Asset Funds or MPS: the pros and cons
Multi-asset Managed Portfolio Service (MPS) is rising in popularity, but with CGT changes Multi-Asset Funds (MAF) are getting a fresh look. What are the pros and cons

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Mitigating sequence of returns risk

4/4/2025

 
Model Portfolio Performance Comparison. Comparing accumulation and decumulation of strategies for accumulation and decumulation. Mitigating sequence of returns risk
How does performance of different model portfolios for accumulation and decumulation stack up. Making regular withdrawals.

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custom portfolioS - opportunities and key considerations for advisers

4/4/2025

 
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Henry Cobbe explores this topic in an article for FT Adviser

On the up: rising demand for Custom MPS

25/3/2025

 
A navy suit tailored onto a mannequin representing custom MPS
What is driving the rising demand for Custom Model Portfolios?

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Gaps In the Market

19/3/2025

 
Puzzle pieces with a gap to represent Gaps in the Market
Henry Cobbe, Head of Research, Elston Consulting explores gaps in product development with Investment Week.

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Active vs Passive Investing: The Trillion Dollar Switch

18/3/2025

 
ICI Factbook 2014, Fig 3.9
Over $2.5 trillion has been switched from actively managed to index-tracking funds.  What does this mean for providers?

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Investment Trust Cost Disclosures - a compromise

13/3/2025

 
Two Men Shaking Hands
Differentiating between trusts that hold real assets and listed securities allows more nuanced approach.

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cpd for financial advisers

3/3/2025

 
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Our last in person CPD events before Tax Year End (for UK advisers only) - some places still available!

Thu 6 Mar: Birmingham - Tax Advantage of Direct Gilts Investing

Tue 11 Mar: Edinburgh - Investment Solutions in new tax regime: onshore bonds, unitised funds, GIA portfolios, gilts

Thu 13 Mar: York - Tax Advantage of Direct Gilts Investing

We hope to see you there!

Can't join in person? Find out more about Direct Gilts and register for the playback online webinar here!

Custom MPS: Redefining Adviser-Led Portfolios

27/2/2025

 
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​Read Henry Cobbe's article for Compare The Platform on the rise of custom MPS

Rise of Insourcing

21/2/2025

 
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Read Henry Cobbe's latest article for Asset Allocator on portfolio insourcing.

manager interview with hoshang daroga

14/2/2025

 
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FT Adviser interview with Elston's Investment Director Hoshang Daroga

Why Direct Gilts are a smart alternative to Cash Deposits for high-earners

7/2/2025

 
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Elston explores how advisers can buy UK gilts directly for their clients In this article and CPD webinar.

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citywire adviser choice awards 2025

30/1/2025

 
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Thank you so much to all the UK advisers who voted for us in these upcoming awards!

Elston was one of the early pioneers (back in 2018!) of adviser-defined Custom mandates for DFMs and Advisers, and we are glad the idea has caught on! We aim to continue to deliver, helping adviser to support their clients achieve great investment outcomes at great value for money.

So we are delighted that Elston Portfolio Management - which powers both our ready-made and Custom MPS services - is on the shortlist in each of the 6 categories announced today....

Best Reporting
Best Value for Money
Most Satisfactory Investment Outcome
Best Communication in a Crisis
Most Useful Digital Interface
Best Availability of Sustainable Investment Strategies

After being honoured to win 7 out of 12 categories in 2024, it wd be a statistical stretch to achieve that again in an ever widening, highly competitive field. But here's hoping!
​
You can see the full shortlist here.

how to make cashflow modelling assumptions

24/1/2025

 
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Cashflow modelling is useful for financial planning at any stage, but essential for decumulation and retirement income advice.
How to make cashflow modelling assumptions
How can advisers make cashflow modelling assumptions that are robust and reliable?
It's important that financial adviser business have robust cashflow modelling assumptions.
We explore the key variables
Growth rates: we propose using SMPI rates from the FRC aligned to the recommended portfolio solution
Inflation rate: we propose using FRC assumptions
Cash rates: we propose using an average cash rate.
Costs and charges: we propose using the total cost and charges figure of the recommended solution.
We will be updating this with additional information shortly.

investment trust discounts attract saba capital

19/1/2025

 
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  • Persistent discounts have attracted a US activist hedge fund
  • Their criticisms are valid, their cure is self-interested
  • A wake-up call for Investment Trust boards

​The Investment Trust sector has been under pressure for the last few years.  Investment Trusts that invest in liquid public overseas equities are compared to lower cost index fund and ETFs.  Investment Trusts that invest in liquid public UK equities – likewise, but with the additional challenge of a general deallocation from UK equities impacting flows.  Finally, Investment Trusts that invest in property and other real assets such as wind farms and infrastructure have been pressured by rising borrowing costs that also impact valuations.
Throw into the mix an extensive debate around cost disclosures[1], a public boardroom bust up at Scottish Mortgage[2] and accusations that the industry is too “cosy” with independent boards being independent in name only but in reality very rarely challenging or replacing sponsoring investment managers.
This has created a perfect storm for Investment Trusts where the lack of demand has led to persistent discounts.

Vulnerable to an attack
As the sector has not got its house in order pre-emptively, sharks are now circling in the shape of an activist US hedge fund, Saba Capital, that has built up stakes in 7 investment trusts.  They are now requisitioning shareholder meetings to oust each Trust board and install their own candidates as board members and transfer the investment management contracts to Saba.
If they are successful it’s a neat way of getting hold of almost £4bn of UK retail assets and collecting management fees on the same.  In this respect, their strategy (however presented) is not without self interest.

Who are Saba Capital Management?
Saba Capital Management is a US based hedge fund specialising in arbitrage.  It also manages US-based investment trusts.

We agree with the diagnosis
We agree with Saba’s diagnosis of the failings of some of the Investment Trusts.
We also agree with the key tenets of how boards should act to deliver value to shareholder.  Based on Saba’s own proposal[3], this would be to:
  1. Offer liquidity events to address NAV discounts
  2. Reviewing Trust’s managers including performance and fees and evaluating the termination of existing management arrangements
  3. Refocus the Trusts’ investment mandates to realise scale benefits and synergies (for example consolidation).
In our views, these should be “good housekeeping” points for any trust board.

We disagree with the cure
However we disagree with Saba’s self-interested proposal to take over these Trusts with just two of its own appointees to each board.  From the outside, this looks like an asset grab in a sector that has done too little to address its own problems.
It would be preferable for Investment Trust boards to wake up and force change themselves, rather than wait to have it forced on them by self-interested third party.
Ironically, it may take this abrasive battle to stimulate change in the sector.

What happens next?
In the end it will be up to retail investors to vote their shares.  The risk is that investor apathy and or the technological barrier to exercising a vote via retail platforms (another area of unfinished business that has been neglected too long) means that Saba
If Saba do win, it will vindicate their activist approach and a sorry indictment that the Investment Trust sector didn’t get its house in order earlier.  So either way it’s hopefully it’s catalyst for reform and increased discipline, transparency and true independence in the Investment Trust sector.

Why do investement trusts trade at a discount
The share price of an investment trust can be at a wide premium or wide discount to their NAV, for the following reasons:
1) because there is low or shrinking demand for the shares. As investment trusts are closed-ended funds, the premium or discount reflects the direction of supply and demand of shares.  For an investment trust, the premium or discount to NAV is primarily a function of demand.  When demand is very high, the share price can be at a premium.  When demand is very low, the share price can be at a discount.  
2) because the fund holds some hard-to-value or periodically valued investments.  Assets such as physical property or infrastructure projects, a discount to NAV can reflect a lack of confidence in the NAV attributed to those assets.  For example, when interest rates rose dramatically which would force a reduction in the value of a property portfolio, the market may have applied a greater discount to NAV more quickly, than the NAV would be reviewed. 
3) because there is no catalyst to drive a re-rating.  With no catalyst or a valuation re-rating such as a capital event (capital distribution, share buyback, change in dividend policy), discounts can persist.


Why do investment trust discounts  narrow?

Discounts can narrow for three reasons:
Firstly, if there is high or growing demand for the shares.
Secondly, where there is potential for a capital event.
Finally, assuming markets are efficient, when there is a change in the outlook for net returns over time.
Furthermore, where an investment trust invests entirely in liquid publicly traded securities, this means the NAV can be clearly evaluated, creates scope for “arbitrages” – buying or selling the Investment Trust relative to its underlying holdings.  This helps keeps premiums/discounts narrow. 

Why do investment management fees matter
The investment management fee is typically applied to the NAV (a few trusts are moving to management fee being applied to share price to align interests better with shareholders).
Investment trust fees matter as they consume a portion of the trust's NAV. 
For two investment trusts with an identical basket of underlying assets, an investment trust with high fees as a % of NAV will underperform an investment trust with low fees as % of NAV, other things being equal.

What is the difference between a fund, an ETF and an Investment Trust?
  • Funds (OEICs and AUTs) are not listed on an exchange, and their units can be bought or sold each day at their NAV.  The investment management fee is applied to the NAV.
  • Exchange Traded Funds (ETFs) are public limited companies (plc) listed on an exchange and their units can be bought or sold anytime during market hours, and their share price can be at a negligible premium or negligible discount to their NAV, 1) because the fund holds easy-to-value publicly listed securities and 2) because the funds are open-ended there is an active primary and market for fund units that can absorb supply and demand.  The investment management fee is applied to the NAV.
  • Investment Trusts are public limited companies (plc) listed on an exchange and their units can be bought or sold anytime during market hours

Conclusion
The investment trust sector needs reform.  We would prefer the sector to reform itself.

[1] some want Investment Trusts to be treated as operating companies and have their running costs excluded from fund-of-fund OCFs. Other wanting Investment Trusts to continue to be treated as other publicly listed retail funds (ETFs), and ensure their running costs continue to be included in fund-of-fund OCFs to maintain a level playing field. We are in the latter camp. To bring nuance to the debate, we think there should be differentiated treatment between Investment Trusts that invest predominantly in publicly listed securities, and those that invest predominantly in real assets (property, infrastructure etc).

[2] https://www.ft.com/content/84c6442c-4108-4094-b94d-8585517da00a

[3] https://www.mindthegap-uktrusts.com/

What makes a good investment consultant

12/1/2025

 
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Henry Cobbe, Head of Research at Elston Consulting, shares his insights in an interview with Institutional Asset Manager following our recent IAM Award win.

Read full article here​

budget changes 2024

4/11/2024

 
Join us for this Post-Budget Review: what does it means for 1) the UK economy, 2) your clients, and 3) your advice proposition
Agenda
  • Introduction (with Elston's Head of Research Henry Cobbe)
  • Update UK economic outlook (with FT Investors Chronicle's economist Hermione Taylor)
  • Market outlook (with Elston's Investment Director Hoshang Daroga)
  • The "Fix first, flex later" pension and budget comment (with Sir Steve Webb of LCP and former Pension Minister)
  • Investment solutions in new tax regime (moderated by Head of Adviser Relations Elston's Scott Adams)
(For UK Advisers only)

budget changes 2024

30/10/2024

 
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What does the budget mean for pensions?
What does the budget mean for IHT
What does the budget mean for the economy, market and taxes
Economy: slight upgrade to growth, continued gradual moderation of inflation slightly above 2% target
Markets: gilt yields rise slightly whilst digesting spending plans
Taxes: a higher burden on employers and asset-rich individuals
​We discuss this in our research for UK advisers
Contact us to get our full analysis to discuss with your clients
Apply for a place at our upcoming post-Budget review conference on 13th November 2024

considering key-person risk in funds

26/9/2024

 
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In the active world, is it ok to have more than one fund from one manager in a portfolio?  We think there are differences for single-asset funds and multi-asset funds.

For single asset funds, one reason for not having multiple funds run by the same team is key-person risk.
For multi-asset funds, the issue is less pronounced owing to team structures, but it really depends on the strategy.
So when building an investment portfolio, is it ok to have more than one fund from one manager?
We think it depends on the context.

According to Jackie Qiao, head of fund research at Elston Consulting, key-person risk is reduced when two elements are in place. Firstly, the success of the fund relies more on the overall capability and consistency of the team rather than just one individual's influence. Secondly, the investment process needs to be “robust and disciplined”.

However, there are some considerations to keep in mind. For instance, when utilizing multiple funds managed by the same team, the factors to consider differ between security selection funds and asset allocation funds.

For security selection funds, it can be beneficial if the investment philosophy and approach are similar. Qiao explains, “For example, a team focusing on UK small-cap and UK small-cap value shares a lot of overlap. But if the security selection strategies vary significantly (like UK small-cap versus UK large-cap), it is less likely that there is overlap, and we could question whether the same team can manage both.”

In the case of asset allocation funds, the emphasis is on multi-asset capabilities. For example, when considering a managed Equity, Bond or Alternatives allocation fund, there is a logic to having funds from the same range, that are managed by the same team to a consistent investment outlook with “broad diversification and dynamic asset allocation management.”

Qiao notes that having a consistent approach across asset classes from the same team ensures a consistent outlook. “It would be unusual to have an equity fund positioned for rate hikes and a bond fund positioned for rate cuts. Therefore, a single team-based approach for asset allocation funds is more sensible than for security selection funds,” she concluded.
​
Read the Trustnet article here featuring Elston's Jackie Qiao on key things to consider.

embracing technology in portfolio management

6/6/2024

 
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[5 min read, open as pdf]
  • Integrating technology is key to success
  • Technology should enable productivity gains
  • Is technology disruptive for the sector
Read in full

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© COPYRIGHT 2012-25. ALL RIGHTS RESERVED.
 Elston Consulting Limited (Company Registration Number 07125478) is registered in
England & Wales, Registered address:  1 King William Street, London EC4N 7AF
  • WHO WE ARE
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