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GAM: Best Wealth Manager – Cautious Portfolios

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GAM is one of Europe’s largest independent active asset managers. It is a member of the GAM Holding Group, which has approximately USD128.7bn (as at 31 December 2013) of assets under management. Over the last 10 years GAM has designed and managed bespoke mandates for private clients by working with some of the world’s most highly regarded intermediaries, private clients, institutions and charities.

In 2012, GAM embarked upon establishing a model portfolio solution. This led to the hiring of Charles Hepworth from Quilter in May 2012 and the creation of GAM Model Portfolio Service six months later, which Hepworth currently heads up. GAM MPS offers a range of five risk-rated investment strategies: Defensive, Cautious, Balanced, Growth and Global Equity.
 
“GAM MPS invests into equity, fixed income, absolute return and alternative funds (and also cash) and each targets discrete volatility boundaries, which we feel is more closely related to the IFA community and their clients’ needs,” says Hepworth.
 
As for the fund’s own performance, since inception two years ago it has outperformed the IMA Mixed Investment 20-60% Shares Average Index returning 13.96 per cent (relative to 8.35 per cent for the index) in 2013.
 
“The returns we’ve generated in the cautious portfolio have exceeded our expectations,” says Hepworth, noting that technology was a strong performer.
 
“Overall, all strategies in the portfolio contributed to last year’s performance. In equity we had roughly a 55 per cent allocation on average over the year (in line with the IMA sector on average). Our median estimate was to achieve a 5 to 6 per cent return so on that basis given that the volatility was 6.6 per cent (target is 7.8 to 10.4 per cent) we achieved good risk-adjusted returns. It was a standout year for us.”
 
The focus of the cautious strategy is on capital protection. The equity allocation serves to generate above average returns, which is becoming increasingly necessary as fixed income returns aren’t as obvious anymore in a rising rate environment. Aside from having exposure to global government bonds, emerging market credit and alternatives (one private equity fund currently) the portfolio builds exposure through global equity funds.
 
“Capital protection would ordinarily push you towards fixed income but we’re having to move away from core vanilla fixed income positioning,” explains Hepworth. “We have one particular exotic fixed income fund which invests in financial names by focusing lower down the capital structure on their debt. GAM Star Credit Opportunities is managed by a delegated Geneva-based investment manager Atlanticomnium SA.”
 
The cautious strategy typically holds between 20 and 30 funds. The largest positions are in the above-mentioned Atlanticomnium fund (9.1 per cent) and the Ardevora UK Income fund (8.8 per cent) as at end of March 2014. “We wouldn’t go much higher than that,” says Hepworth, noting that the maximum drawdown in the strategy last year was just three per cent. Year-to-date, the strategy is up 0.7 per cent (as at 31 March 2014).
 
Whilst the strategy holds long/short equity funds as part of its absolute return allocation, Hepworth says that “going forward this year we will be more market neutral”.
 
Commenting on winning the award this year, Hepworth says: “It is always good to achieve recognition within our industry and it obviously reflects well on the hard work the whole team has put into the product since we launched this for the IFA community.”

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