Next in the hot seat in ETF Stream’s Expert Investors series, where we interview fund buyers about their ETF usage on a fortnightly basis, is John Leiper, CIO at Tavistock Wealth.
Leiper joined Tavistock Wealth as a senior portfolio manager in 2017 before being appointed head of portfolio management in 2018 and subsequently CIO earlier this year. Prior to Tavistock Wealth, he held roles at Credit Suisse and Morgan Stanley.
How much of your portfolio is made-up of ETFs/index funds?
Tavistock Wealth manages circa £900 million of investments across regulated UCITS funds and model portfolios.
The ACUMEN Portfolios form the heart of this proposition. These are broken down into 10 multi-asset class UCITS funds, 3 of which have a contractual bank guarantee, locking in 90% or 85% of the highest recorded net asset value.
These funds invest exclusively in exchange-traded funds (ETFs) as well as index-linked derivatives such as futures, forwards, swaps and options.
When did you start investing in ETFs?
ETFs are particularly suited to our active style of fund management. They also benefit from increased liquidity, tax efficiencies and are low cost. We have been investing in ETFs since inception of the ACUMEN range in October 2014.
Which asset classes do you tend to invest in through ETFs?
We allocate risk around the globe and across asset classes including bonds, equities, property, commodities and currencies. The investment process is grounded in fundamental economic research and the application of quantitative and qualitative analysis.
Which areas would you avoid?
I tend to avoid ETFs that are overly complex or where the benefits of diversification are less than clear. Examples include inverse ETFs that employ short volatility strategies or ETFs that provide exposure to subordinated additional tier 1 bonds.
What is your methodology for selecting ETFs?
We consider a range of factors when selecting ETFs such as size, liquidity, cost, structure (physical or synthetic), methodology (replicating or optimised/sampled), benchmark, tracking error and so on.
When combined with our best execution policy, which looks at an additional range of factors including spread and distance from fair value, this methodology results in a notable improvement and net benefit to the end investor.
Do you have an ETF provider preference?
As an early mover in the space, BlackRock has the widest range of sufficiently large and liquid ETFs, closely followed by a growing list of ETF issuers including DWS, Lyxor, UBS, Amundi and Vanguard to name a few.
But it really depends on asset class. I see Wisdom Tree as more of a commodity ETC specialist whereas Tabula, KraneShares and HANetf, to name a few, offer an exciting range of novel product solutions.
What ETF products would you like to see more of?
Our ESG range adheres to a best-in-class environmental, social, governance investment policy which is a data-driven framework designed to distinguish between ESG leaders and laggards.
I would like to see more ETFs in this space, particularly in fixed income and emerging markets as well as ETFs combining ESG with traditional ‘factor’ exposures.
Are there any areas ETF providers could improve?
ETF providers are, by definition, transparent and eager to engage. Overall, I think they do an excellent job.
So all l can think of, as I write this from my home study, is how nice it would be to attend a few ETF conventions for some post lockdown ETF-based socialisation.
Expert investors is a series brought to you by ETF Stream where on a fortnightly basis we interview the key individuals from across the fund selection and research space about the ETF ecosystem.
Fund selection plays a crucial role in portfolio construction. Once the asset allocation decision has been made, these individuals need to decide how they want to be exposed, be it through a mutual fund, investment trust or ETF.
Over the years, ETFs have become an increasingly important part of any investor’s toolkit. This series will show how the key players across the fund selection space use ETFs in their portfolios while asking what more can be done by the ETF providers to help with this increasing adoption.
To read the previous edition of Expert Investors with Steven Goldin, founder and managing partner at Parala Capital,click here.