sarasin and partners
DESCRIPTION
TRANSCRIPT
January 2013
Sarasin & Partners LLP
Fund of Funds
Sam Jeffries, Oliver Tucker, Lucy Empson
2
Contents
10 Myths of Fund Selection
Sarasin & Partners’ Investment Principles
Conclusions
“ We aim to identify the main traps and pitfalls in fund selection whilst inspiring
conviction in active management ”
3
Sarasin & Partners: Introduction
Funds under management: £12.4bn*
A partnership: the local management team
owns 40% of the company
Bank Sarasin, one of Switzerland’s leading
private banks, owns the remainder
Established fund research capability with over
£1bn of assets
Detailed client reporting packages
*Source: Sarasin & Partners LLP as at 31.12.12 (updated quarterly)
** Source: Sarasin & Partners LLP as at 31.12.12 (updated bi-annually); exchange rate used as at 31.12.12 is CHF:GBP = 0.6778
“A Well-Balanced and Growing Client Base”
AUM (£bn)**
29.9
32.5
21.0 16.6
Private Clients
Charities
Institutional Clients
Investment Funds
12.412.1
11.7
12.5
9.4
7.07.1
6.15.4
4.0
1.9
0
2
4
6
8
10
12
14
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
4
Our Fund of Funds
Source: Sarasin & Partners LLP, updated to 31.12.12
Sarasin Global Diversified Fund of Funds
50% equity neutral
From the left: Sam Jeffries, David Vickers, Lucy Empson, Oliver Tucker
The team researches the mutual fund universe,
seeking “best ideas”, whilst leveraging Sarasin
& Partners’ longstanding macroeconomic
capability to build Fund of Fund portfolios
Sarasin Global Equity Fund of Funds
100% equity neutral
10 Myths of Fund Selection
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Myth 1. Highest rated funds are the best
Source: Morey, 2003
Information Ratio: Alpha / Volatility of Alpha (i.e. tracking error)
Over 80% of funds underperform in the 3 years following their first 5 star
rating from Morningstar
Buying a fund because it has a good rating does not guarantee outperformance
Info
rma
tio
n R
atio
Pre rating performance
Post rating performance
Total net underperformance
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Myth 2. Back the most experienced managers
Source: Agarwal, Discoll, Gabaix & Laibson, 2009
There is a sweet spot!
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Myth 3. Flagship funds are safe havens
Most sectors are dominated by behemoth multi-billion pound funds which often
struggle to outperform as FuM increases
Flagship fund FuM and alpha over time
Re
lati
ve
Re
turn
(%
)
Source: Lipper
9
Ignoring bottom quartile managers means you often miss great buying opportunities
Bottom quartile might represent a style being out of favour, rather than poor skill
Performance relative to FTSE All Share
Myth 4. Never buy a bottom quartile fund
Fund
Peer Group
1st 1st
4th
Source: Lipper
10
Myth 5. Risk adjusted ratios alone are enough
Risk and return tend to move in the inverse of each other
This means commonly used risk adjusted ratios such as the Information Ratio
should not be solely relied upon
Share price - LHS
Volatility (risk) - RHS
Re
turn
(%
)
Vo
latility
(%)
Source: Lipper
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Overweights
Passive
Fund A Fund B
Myth 6. All fund managers are equally active
40% different to
benchmark:
Limited potential to
outperform
80% different to
benchmark:
Double the potential to
outperform
Underweights
The further a fund is from the benchmark, the greater the chance of outperforming
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Myth 7. Diversification is always good
Source: Brearley, 1969
The benefits of diversification diminish significantly beyond 15 stocks and are
virtually nil beyond 50 stocks
Concentrated portfolios can have a higher chance of outperforming
% of Single Stock Risk
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Myth 8. Outperforming managers must be skilled
After fees benchmark huggers underperform on a relative basis
Relative performance vs. FTSE All Share
Negative skew
Lucky or skilled?
Source: Lipper
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Myth 9. Rely on past performance
Source: Moss, 2009
How sure can we be that this top performer is the most skilled?
With 3 years of past performance you have only 17% probability
To get 100% probability, you need 160 years of past performance!
Top performer
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Myth 10. Stock pickers should outperform in all markets
Increasing dispersion = potential to outperform
Scenario 1 – no distinction between stocks – better to go passive
Scenario 2 – higher chance of outperforming – better to go active
Scenario 1 Scenario 2
Stock A
Stock A
Stock B Stock B Market Market
Source: Sarasin & Partners LLP
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1992 1997 2002 2007 2012
Increased dispersion is good for stock pickers
Myth 10. Stock pickers should outperform in all markets
Source: Lipper
Dispersion calculated as difference between bottom of first quartile and top of fourth quartile
Re
lative
Re
turn
/ D
isp
ers
ion
(%
)
Sarasin & Partners’ Investment Principles
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E.g. Baring Europe Select +2%
Run by Nick Williams who has spent many years running small cap funds
Our Principles
Active Portfolio
Experienced Manager
Forward Looking
buy managers who are truly expressing a
view, otherwise go passive
leverage off experience through market
cycles, particularly given similar fees are
paid, regardless of manager experience
exploit Sarasin’s macroeconomic output to
identify key trends
E.g. Ardevora UK Equity +8.5%
In a 150/50 structure, providing us more opportunity to outperform
E.g. Invesco Japanese Equity Core +14%
Bought pre-elections as macro team viewed LDP victory as significant
Source: Lipper; performance numbers are since purchase and relative to the funds’ respective benchmarks
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1992 1997 2002 2007 2012
Increased dispersion is good for stock pickers
Now is the time for active management… R
ela
tive
Re
turn
/ D
isp
ers
ion
(%
)
?
Source: Lipper
Dispersion calculated as difference between bottom of first quartile and top of fourth quartile
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Sarasin & Partners’ Fund of Funds provide you with:
Our established fund research capability with over £1bn assets
The longstanding macroeconomic expertise of the firm
The diversification, flexibility and choice investing in Fund of Funds brings
Detailed client reporting package
And DT risk rated solutions:
3
7
5
“Over 90% of Sarasin
Global Diversified Fund of
Funds is different from our
major peers”
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Our Fund of Funds
Source: Sarasin & Partners LLP, updated to 31.12.12
Sarasin Global Diversified Fund of Funds
50% equity neutral
From the left: Sam Jeffries, David Vickers, Lucy Empson, Oliver Tucker
The team researches the mutual fund universe,
seeking “best ideas”, whilst leveraging Sarasin
& Partners’ longstanding macroeconomic
capability to build Fund of Fund portfolios
Sarasin Global Equity Fund of Funds
100% equity neutral
Appendix
23
Qualitative
Liquidity
Cost
Management
Quantitative
Attribution
Risk
Technicals
A verification process
Our Process
Consistency
Screening
Risk / Return
Compensation
Macroeconomic
Output
Scenario Analysis
Idea Generation Due Diligence
We leverage off Sarasin’s
longstanding
macroeconomic
capability utilising a core
satellite approach
Portfolio Construction
Process
Firm
Turnover
Style
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Sarasin Global Diversified Fund of Funds
Key Holdings
Equity
Threadneedle American Extended Alpha
Cartesian Enhanced Alpha
Findlay Park American
Bonds
LGIM All Stocks Gilt Index
Insight Long Dated Corporate Bond
Alternatives
Bluecrest AllBlue
Third Point Offshore
Asset Allocation as at 31st December 2012
Source: Sarasin & Partners LLP
Currency
Sterling 70.7%
Dollar 27%
Euro 2.3%
Yen 0%
Objective:
25% MSCI AC World LC
25% MSCI AC World GBP Hedged
40% BofA Merrill Lynch Broad Market
10% Cash
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Sarasin Global Equity Fund of Funds
Key Equity Holdings
UK
Cartesian Enhanced Alpha
US
Findlay Park American
GAM North American
Europe
Baring Europe Select
Japan
Polar Capital Japan
Source: Sarasin & Partners LLP
Asset Allocation as at 31st December 2012
Currency
Sterling 59%
Dollar 35%
Euro 6%
Yen 0%
Objective:
50% MSCI AC World LC
50% MSCI AC World GBP Hedged
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Who to contact at Sarasin & Partners
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This document has been issued by Sarasin & Partners LLP, a limited liability partnership registered in England and Wales with registered number
329859 whose registered address is Juxon House, 100 St Paul's Churchyard, London EC4M 8BU. Sarasin & Partners LLP is authorised and
regulated by the UK Financial Services Authority. This seminar is intended solely for information purposes and as such is not a solicitation, or an
offer to buy or sell any security, or a recommendation to make an investment based on the contents of this presentation. Neither Sarasin &
Partners LLP nor Sarasin Investment Funds Limited provide investment or tax advice. If you are in any doubt you should seek independent advice
as to whether an investment is suitable for you prior to undertaking investment activity.
Information provided in this presentation does not constitute independent investment research or advice. In this seminar we refer to the Sarasin
Fund of Funds OEIC and its sub-funds (the "Funds"), and not those funds of any competitors. There may be other funds and/or products in the
wider market which meet your investment objectives and requirements. The information on which the document is based has been obtained from
sources that we believe to be reliable, and in good faith, but we have not independently verified such information and no representation or
warranty, express or implied, is made as to their accuracy. All expressions of opinion are subject to change without notice.
There are risks involved with investing in a collective investment scheme and each Fund carries its own risks. This notice does not explain all the
risks involved in investing in the Funds and you should therefore ensure before you invest in the Funds, that you read the current prospectus and
relevant key investor information document(s) which contain further information regarding the Funds and the applicable risk warnings. If in any
doubt, you should consult your financial advisor.
Please note that the value of shares and the income from them can fall as well as rise and you may not get back the amount originally invested.
This can be as a result of market movements and also of variations in the exchange rates between currencies. When calculating performance, all
the costs charged to the fund were included to give the net performance. Performance was calculated on the basis of net asset values (NAV) and
net dividends reinvested. Additional commissions, costs and taxes charged at the investor level have a negative impact of performance. Tax
treatment depends on the individual circumstances of each person and may be subject to changes in the future.
The Funds will invest in other collective investment schemes including both regulated and unregulated collective investment schemes (such as
hedge funds). Investment in unregulated collective investment schemes carries additional risks as such schemes may not be under the regulation
of a competent regulatory authority, may use leverage and may carry increased liquidity risks.
As an investor in other collective investment schemes, a Fund will bear its proportion of expenses of such collective investment schemes., and will
assume any specific risks associated with such collective investment schemes. These fees will be in addition to the management fees and other
expenses which a Fund bears directly with its own operations. For efficient portfolio management, the Funds may also invest in derivatives. The
value of these investments may fluctuate significantly, but the overall intention of the use of derivative techniques is to reduce volatility of returns.
Sarasin & Partners LLP and/or any other member of the Bank Sarasin group accepts no liability or responsibility whatsoever for any consequential
loss of any kind arising out of the use of this document or any part of its contents. For your protection, telephone calls may be recorded.
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Sarasin & Partners LLP
Juxon House
100 St Paul's Churchyard
London EC4M 8BU
Telephone +44 (0)20 7038 7000
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