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Allan Miller, SCM Direct

Miller finds ETFs continue to be good news for investors

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It’s been a long time since Alan Miller, CIO and Founding Partner of SCM Direct, was a hedge fund manager. He left New Star in 2006 and throughout his career had managed money in all types of structures and asset classes, but the ‘hedge fund manager who converted to actively managing only ETFs’ is an easy win in editorial terms, so ‘a former hedge fund manager’ he often remains. 

It’s been a long time since Alan Miller, CIO and Founding Partner of SCM Direct, was a hedge fund manager. He left New Star in 2006 and throughout his career had managed money in all types of structures and asset classes, but the ‘hedge fund manager who converted to actively managing only ETFs’ is an easy win in editorial terms, so ‘a former hedge fund manager’ he often remains. 

However, with his asset management business SCM Direct, and with his campaign, the True and Fair Campaign – both initiatives conducted with his famous crusading wife, Gina Miller – Miller has more than embraced the need for low cost investments.

He will be second opposer in etfLIVE’s debate in May, opposing the motion: ‘This house believes ETFs will ultimately increase instability in the capital markets’ with Allan Lane from Algo-Chain.

“I have managed many different types of assets from 1988 onwards,” Miller says. “I have always been an active manger whether in individual shares or index funds. I look at everything on the same basis. I look at the valuations. I have never been somebody who is comfortable in any shape or form with buying something solely because it’s share price is going up. I have always been contrarian and only buy something that is undervalued and that is the same with ETFs and index funds which is why for 10 years now, SCM has been successful in that space.”

SCM Direct invests entirely in ETFs, offered through discretionary portfolio services. The firm doesn’t disclose its funds under management but has seen steady growth, Miller says.

“Unlike our peers we don’t spend huge amounts on advertising, having made the strategic decision to grow organically and by word of mouth – more the tortoise than the hare approach” he says, with the number of accounts and assets up by over 30 per cent in the last 12 months.

The firm’s Balanced Absolute Return Portfolio has 43.7 per cent in bonds, 55.7 per cent in equities and 0.6 per cent in cash. Over the last three years it has returned 15.4 per cent.

SCM Direct charges an annual management fee of 0.4 per cent plus VAT, then there are the additional fees within the ETFs, the market maker’s bid/offer spread and administration fees of 0.12 per cent. The completely transparent total fee on the portfolios is 1 per cent per annum. Which means that for a GBP100 investment, investors typically pay GBP1.

The firm also offers an ESG Ethical Portfolio for which they publish the entire underlying holdings online every month. Launched less than a year ago, the portfolio has become very popular, particularly with a female client base.  

Miller says “The pitfalls of misclassification in ESG and greenwashing are even more scandalous than other products, when you consider typical ESG investors invest on a basis of trust and integrity, and wanting good returns as well as to do good, but in the ESG space there is a lot of potential mis-selling as, when you look under the bonnet of many ESG products, they are not ethical.”

He names a well-known robo-adviser whose ESG portfolio is 96 per cent in government bonds and 3 per cent in ESG. “I think if you offer a specific ESG range then clients are entitled to expect it to be 100 per cent in ESG,” Miller says. “The industry is taking advantage of the trust, of younger more naïve clients and female clients in particular.  We know from research that trust is the top priority for female investors, but for men it is performance.”

SCM Direct’s portfolios use a wide range of ETFs, Miller says.

“We have more different ETFs, both by number and by type and we find that a lot of ETF-based portfolios tend to be focused just on plain vanilla core assets such as the S&P 500, but we include everything from local currency emerging market bonds to value tilted indexes.”

The firm has never had an illiquidity issue with buying or selling a single ETF and never had an issue with trading.

“It’s a shame in the world of ETFs that more of the liquidity is not directly on exchange but via the request for proposals (RFP) process,” Miller says. The firm uses a platform administrator for trading.

The use of ETFs has grown around his firm. “When we started in 2019, I was at an event for IFAs where the speaker said how bad ETFs were as they had more performance, less cost and no commission and I thought that might be bad news for IFAs, but good news for investors.”

Alan Miller will be speaking at etfLIVE, 20 May, London. More information is available here.

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