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. 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.
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:
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?
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/
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
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 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. [5 min read, open as pdf]
Elston Portfolio Management, the MPS provider which uses research, analytics and insights from Elston Consulting is now available to advisers using the Parmenion platform.
Read the full article here Removing look-through fee reporting for all products in a fund of funds would make it harder to understand the fee-drag on an investment.
Read the full article in Citywire Following the publication of the FCA TR24/1 Thematic Review on Retirement Income Advice, there's renewed focus on Retirement solutions. That's great news - we've been focused on Retirement Investing since 2012 and led our #RethinkingRetirement campaign in 2015. We continue to innovate for our clients - the Advisers we support.
In June, we are running a series of webinars focused on retirement investing. More details are below. For UK Advisers: to sort your CRP and find out about the Elston Portfolio Management Retirement Income MPS launched >3 years ago in March 2021, please arrange for a consultation. CPD Webinars on Retirement Income Advice & Solutions 1. Wed 5-Jun-24 1030am: FCA Thematic Review on Retirement Income Advice Key findings, and what advisers and policy owners should do next 2. Wed 12-Jun-24 1030am:"Flex first, fix later": exploring the future of retirement income with Sir Steve Webb An annuity too early could be poor value. 3. Wed 19-Jun-24 1030am: Assessing suitability in retirement Different challenge, different questions. 4. Wed 26-Jun-24 1030am: Retirement Investing (Introduction) Different objectives and different risks requires a different approach. 5. Read our research and Insights on Retirement Investing going back to... 2012! Times above or register to access replay. All webinars are 1h CISI endorsed CPD (1.5h CPD with online test) Henry Cobbe & Bill McCracken confirming the sponsorship Elston Consulting is excited to support Clydesdale Cricket Club as the new principal sponsor. We’re building on the great work of Prosperity Financial Solutions, who have been a valued supporter of the club for many years.
Henry Cobbe, Founder and Head of Research at Elston Consulting, shared his perspective: “Team sports play an essential role in personal development, both individually and within a group. We are proud to support Clydesdale Cricket Club and wish all their teams the very best for the season ahead.” Ali Bleach, President of Clydesdale Cricket Club: “We are delighted to welcome Elston on board as Club Sponsor and as sponsor of the Clydesdale Cricket Club 1st XI and look forward to welcoming them again to our grounds in Pollokshields.” Scott Adams, Head of Adviser Relations at Elston Consulting: “We look forward to supporting the development of Clydesdale Cricket Club as part of this multi-year agreement and will be there to support their upcoming fixtures.” This agreement makes Elston the principal Club Sponsor as well as the official sponsor of the Clydesdale Cricket Club 1st XI. Based in Pollokshields, Glasgow, Clydesdale Cricket Club has been a cornerstone of Scottish cricket since 1848. With over 130 cricket clubs in Scotland, the sport offers a wide range of opportunities for men, women, and junior players to compete at various levels, engage in social activities, and build connections within their communities. About Elston Consulting Founded in 2012, Elston Consulting is an independent investment consulting firm supporting UK Financial Advisers. The firm provides in-depth research, analytics, and insights for investment committees across wealth management and financial advisory firms. Elston specialises in designing custom multi-asset investment solutions, including Portfolios, Funds, and Indices, to meet the needs of investors. Connect with Us Clydesdale Cricket Club
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We look forward to a successful partnership and an exciting cricket season ahead! The long-awaited FCA thematic review of retirement income advice has finally been published, and Dear CEO letters sent. What are the key findings and what should adviser firms be putting in place to improve their proposition?
Read the full article on FT Adviser Mainstream platforms have been slow to adopt fractional trading. This has hampered the adoption of ETFs within MPS. With many more index funds available, it's become less of an issue, according to Henry Cobbe, Head of Research at Elston Consulting.
Read the full article in ETF Stream We were delighted that Elston Portfolio Management won 7 out of 12 (and shortlisted in a further 3) in the Best DFM awards in the Citywire Adviser Choice Awards 2024. Thank you to all the Advisers who voted.
Read the full article and pictures here ETF Stream interviews up-and-coming fund selectors about breaking into the industry, how experiences have shaped their investment approach and their biggest influences in investing and beyond.
Read in full Elston's ESG Specialist, Andrea Acimovic, outlines how new disclosure rules around ESG funds will impact decision-makers.
Read in full Consumer Duty: what do advisers need to do? Who's a manufacturer, co-manufacturer, and distributor and when do the lines need de-blurring?
Watch the CISI-endorsed CPD webinar interviewing Paul Jay of ATEB For adviser firms in good shape, consumer duty should not be a sea-change. For those that haven't got round to complying with the Product Governance obligations from 2018, there's a lot of work to do.
Read the article in FT Adviser |
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