Polaris co-manager Hamish Gibberd emphasises the active asset allocation that will drive SJ P’s new Multi-Index fund range.
St James’s Place’s (SJP) launch of the Polaris Multi-Index fund range is the FTSE 100-listed advice group’s biggest move yet into passive investment.
But why now, for a business that, despite some moves to passive and systematic investment approaches, has historically been wedded to active management?
For Hamish Gibberd, one of the range’s fund managers, the move was made possible by the success of the original Polaris range, which has raced to £84bn of assets in just three years.
‘We had really got our asset allocation and portfolio construction process into a very robust space,’ he said. ‘What we were also seeing was a partner, adviser and client demand for ways to access that and have a solution at a different cost point.’
The Polaris Multi-Index fund range carries an ongoing charge of 0.2%, compared to charges ranging from 0.45% to 0.55% on the original Polaris range, which invests predominantly in active SJP funds.
SJP has negotiated a fee of just 0.0075% with State Street for the running of 14 underlying tracker funds used by Polaris Multi-Index. The four new fund-of-funds use the same asset allocation as the original range, targeting equity weighting of 40%, 60%, 80% and 100% at each risk level.
The multi-index range’s selling point, Gibberd believes, comes from the active allocation to the passive vehicles within the fund of funds. He, alongside chief investment officer Justin Onuekwusi and director of portfolio management Robin Ellis, decides the asset split within the vehicles.
‘It’s not a pure passive solution. It’s an index-implemented asset allocation solution, which is quite important because there’s a distinction between those,’ he added.
While SJP may be a latecomer to passives, Gibberd believes its model may actually help when it comes to making successful long-term calls.
‘Making lots of short-term decisions is very hard,’ he said. ‘Our approach is very much looking out over three to five years and trying to find points of quite extreme dislocation in valuation.’
SJP’s vast internal adviser network ‘really gives us an edge as a fund manager in this space’, Gibberd added, because the managers can stick to positions without worrying about flows.
This means that they can take ‘potentially contrarian positions’ on a three-to-five-year view. ‘Other multi-asset managers might feel compelled to have a shorter-term view,’ Gibberd said. ‘That’s something that seems to be quite distinct.’
‘Not an active versus passive decision’
The debate over whether active or passive management is the best strategy is a well trodden path, and not one Gibberd believes they are taking sides on.
‘It’s not an active versus passive decision, which is better, which is worse,’ insisted Gibberd, who started his career as an adviser at SJP in 2014, before moving into portfolio management in 2019.
But what would prompt Gibberd and his team to make a shift in asset allocation? ‘It depends on what markets do,’ he replied. ‘For example, we think the US is quite richly valued and the rest of the world is relatively cheap … If that reverts quickly, then we will act in the portfolio.’
Gibberd said Polaris had ‘quite a sizable underweight to the US compared to benchmarks’, due to the very high valuations ‘compared to history and other regions in the world’.
The concentration of technology stocks in the US market is another cause for concern for Polaris’ managers.
‘If you see any bad news from an economic perspective, from a market perspective, the US seems like it would be the most likely place that would experience that drawdown just because of those elevated valuations and that concentration element,’ said Gibberd.
The latest factsheet for the SJP Polaris Multi-Index 4 fund – which aims to be fully invested in equities – shows 53.8% exposure to North America. This is below the MSCI All Countries World Index benchmark, which has a 64.7% weighting to US equities, but more than SJP Polaris 4, which holds a 48.4% weighting.
The Polaris range is instead overweight markets such as the UK, Europe, Japan and emerging markets.
SJP Polaris Multi-Index 4 has a 7.4% weighting to UK equities, a 15% allocation to other European equities, and 18.5% in Asia Pacific including Japan.