Download Our investment process - Close Brothers Asset Management

Our investment process
An insight into our investment philosophy,
framework, resources and capabilities
2
Our investment process
Foreword
In our presentations and client research we are receiving an increasing
number of requests for more detail around how we structure our
investment process. What is our approach to finding investment
opportunities and building portfolios? How do we interact as a team in
order to make decisions that are most appropriate for each client?
These issues are important to us because we take huge pride in our
disciplined and collegiate approach to working together. We believe our
investment process is robust and enables us to deliver consistent returns
aligned with risk profile. In turn this consistency drives our ability to provide
our investment expertise in ways that are tailored to individual needs.
As part of our ongoing commitment to transparency and accountability,
we have written this guide to our investment process. It provides a detailed
insight into what we think and how we work as well as the resources and
experience behind our investment strategies.
On behalf of the investment team here at Close Brothers Asset
Management, I thank you for your interest in our firm and our capabilities.
We hope in reading this document you will understand better how we work
together on your behalf.
We are honoured by the trust you have placed in us and equally
understand the deep responsibility we have to deliver.
Nancy Curtin
Chief Investment Officer
Head of Investments
Our investment process
Contents
04 A strong investment culture
05 Our investment philosophy
07 How we structure our investment process
08 Understanding an investor’s objectives
09 Asset allocation: strategic and tactical
12 Investment research and selection
13Equities
15 Fixed income
16Alternatives
17 Active funds
19 Passive investments
20 Investment strategies
22 Performance and risk
24 Reporting and support
26 In summary
This document is intended for advisers,
intermediaries, consultants and investors
who wish to know more about our
investment process as well as the range
of investment solutions and reporting
we provide. Please note that the value of
investments and the income from them may
fall as well as rise and is not guaranteed.
An investor may not get back the original
amount invested.
3
4
Our investment process
A strong investment culture
Close Brothers Asset Management (CBAM) has a strong
investment culture driven by a well-defined investment
process. We believe in the importance of institutionalquality rigour and discipline to guide our decisions. Using
an active and flexible approach, we seek to deliver positive
real returns across all investment strategies.
Investors can access our expertise through discretionary
managed portfolios and a broad range of funds. We do
not believe in a one-size-fits-all approach, which is why
we have created a variety of investment solutions. They
share a common platform and we tailor strategies to meet
individual needs and risk profiles.
As active managers, we seek to enhance returns and limit
losses in two ways:
•Asset allocation decisions, which involve adjusting the
holdings within portfolios against a strategic position
in order to reflect changing economic and market
conditions; and
•Security selection with a preference for liquid and highquality investments at an attractive price.
A personal and accountable investment service
Our process relies on a collegiate approach. More than
55 investment professionals work together to ensure
all strategies reflect the best opportunities across asset
classes and global regions. Each aspect of the investment
process is informed by detailed analysis and lively debate
between all members of the team.
We also believe in individual accountability. That is why we
assign a dedicated team to each investment mandate,
which is responsible for managing the portfolio in line
with its remit. We pride ourselves on our ability to deliver
a highly personalised service, supported by these direct
relationships. Additionally, we provide investors with the
detailed information they need to understand the sources
of returns and risk.
We never stop asking ourselves how we can improve
on what we do. We are continuously striving to refine
and develop our services; and we benefit from access to
leading research and innovative analytical tools.
Our active management capabilities
Multi-asset focus and expertise
Over 55 investment professionals
Global perspective
Equity research
Fixed income research
Strategic Policy
Committee
Alternatives research
Funds and passives
research
Range of portfolio solutions for investors
Close Discretionary Funds
Segregated Portfolio Services
Our investment process
5
Our investment philosophy
A diversified approach
Our investment philosophy is guided by four principles:
• A focus on prudent investment management;
• A diversified approach;
• Active investment management; and
• Institutional discipline within a collegiate culture.
Prudent management
Many people who come to us for our investment expertise
have taken a lifetime or longer to generate their capital. We
understand that our core remit is to invest with a keen eye
towards prudent management. As part of this process, we
help investors understand the power of compounding and
consistent performance. We explain how the volatility of
returns falls over time and why, therefore, it is important to
take a long-term view.
We invest according to today’s market conditions but also
within the context of a long-term strategic framework. Our
asset allocation and security selection decisions focus on
delivering an optimal combination of income and growth,
as well as achieving a real return within an agreed tolerance
for risk.
We recognise that a single asset class rarely outperforms in
all market conditions. Therefore, we believe the best way to
deliver real returns and reduce risk is through diversification
– investing across asset classes, global regions and types
of investments. We invest predominantly in liquid securities
because it allows us to respond to changing market
conditions quickly and enables us to meet the income and
drawdown needs of our investors.
In order to determine the optimal combination of asset
classes for portfolios, we continuously undertake an
analysis of expected long-term investment returns and risk.
This strategic framework provides us with a view of the
appropriate balance of assets to meet different investment
objectives.
Active management
We are also active investors and seek to add value through
both tactical asset allocation decisions and individual
security selection. This process involves tilting the mix
of asset classes in different market conditions and then
expressing our views by selecting the most appropriate
investments. The purpose of tactical asset allocation is not
What underpins our philosophy?
Diversification
Long-term horizon
Prudent management
A single asset class rarely
outperforms.
Volatility falls over time.
A successful strategy is one that
compounds capital consistently.
We invest with a long time
horizon.
We are multi-asset investors.
Annual performance*
Volatility p.a
FTSE 100
Cumulative performance*
Holding period
Portfolio A
Portfolio B
* Theoretical performance
Note: The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor
may not get back the original amount invested.
6
Our investment process
to fundamentally alter a portfolio’s long-term risk profile
but to enhance returns and reduce losses by making
adjustments to the strategic framework.
Our asset allocation decisions are guided by a systematic
overview of the key drivers of returns – growth, value,
liquidity, currency and management – which we define
as our policy framework. We analyse changes in these
factors in the context of structured debate to guide the
tactical decision-making process. Similarly, the security
selection process is driven by our ability to identify suitable
investments at attractive valuations through rigorous
analysis.
Institutional discipline
We are a team of more than 55 professionals. More than
two-thirds have 15 to 20 years of investment experience.
We encourage open debate within a structured framework
of daily, weekly, monthly and quarterly meetings to get the
best out of this experience and to ensure we rigorously
review and evaluate investment opportunities.
Our investment process provides a framework for making
decisions. Investment managers then tailor portfolios to
meet the risk and return objectives of individual mandates.
Internal risk controls help to ensure the investment
approach matches the objectives. Our ability to measure
and monitor risk and performance with clarity and precision
gives us the information we require to carefully monitor
suitability.
Our guiding principles
Prudent management
of capital
• Aim to deliver an optimal combination of income and growth for a given risk profile.
• Aim to achieve positive real returns over the long term and avoid unnecessary risks.
Diversified and
active approach
• Combine asset classes, which play different roles at different times.
• Source opportunities globally and add value through asset allocation and security selection.
Institutional disciplines
and collegiate culture
• Aim to deliver consistent risk-adjusted returns through disciplined review and evaluation
• Collegiately generated views with tailored investment solutions to meet individual objectives.
Note: The value of investments and the income from them may fall as well as rise and is not guaranteed. An investor
may not get back the original amount invested.
Our investment process
7
How we structure our
investment process
We have designed our investment process to help us
deliver optimal investment outcomes. It has four main
components:
•Risk and performance oversight and investor review.
We have a proprietary risk and performance system
(the Close Risk Monitoring System or RMS) and a highly
disciplined internal review process. This framework helps
monitor adherence to risk profiles and provides analysis
of the key attributes of portfolios as well as the sources
of performance.
•The investor. We begin with a clear understanding of
individual needs and suitability in order to define an
appropriate risk profile for each investment strategy.
Investors often work with an adviser to develop and
articulate this understanding.
•The process. We have a structured process to enhance
our ability to add value to portfolios through both asset
allocation and security selection. Our culture values
collaboration and respect for each individual’s expertise.
•The portfolio. Based on the views generated by our
asset allocation and investment selection processes, our
dedicated investment managers tailor portfolios to meet
specific investor needs and risk profiles. This approach
creates individual accountability within a framework of
shared investment ideas.
We then aim to deliver a range of detailed investment
reports and valuations to ensure both our investment
strategies and our performance are transparent and easy
to understand. These reports act as supporting material
in review meetings with investors and advisers, with the
review process tailored to the Close investment service.
Please read the section “Investment strategies” on pages
20 and 21 for further descriptions of our various investment
services.
Integrated investment process
Investor objectives
Investment process
Disciplined and rigorous
Overseen by Chief Investment Officer
Investor, adviser and CBAM
Adding value
1
Asset allocation
Systematic framework
“GVLCM”
*
2
Investment research and
security selection
Qualitative + quantitative
disciplines
Investor reviews
Investor and Close
Close RMS system and internal review:
• Monitoring objectives are being met.
• Portfolio characteristics are aligned with
risk profile.
• Evaluating sources of value add.
With investors:
• Investment reports.
• Meetings to review strategy and
performance.
• Interaction tailored to the Close service.
•C
lear understanding of investor needs
and suitability.
• Determine appropriate risk profile.
• Agree appropriate investment strategy.
Dedicated portfolio manager or team
Views customised for risk profile and
investment service
Our focus is on meeting investor needs throughout the process
*GVLCM = growth, value, liquidity, currency and management
8
Our investment process
Understanding an investor’s
objectives
In order to determine the optimal investment strategy
for each investor, we begin by defining their return
expectations in the context of how much risk they are
willing and able to take. There are many issues to consider,
including financial circumstances, the capacity to absorb
losses, and the level of comfort with investing in financial
markets. Other objectives include the timing and need
for income over capital growth. Our approach is most
appropriate for longer-term investors and is not suitable for
those with a short-term timeframe or trading orientation.
Some investors work with their investment managers
directly to establish appropriate investment objectives and
risk tolerances. Others work with an adviser to determine
a suitable investment approach. We recommend everyone
has a financial plan (one they develop themselves or
with an adviser) to ensure goals and risk tolerances are
appropriate and reviewed as their circumstances change.
We develop investment strategies that align with the
specific needs of each investor.
Please read the section “Investment strategies” on pages
20 and 21 for further descriptions of our various investment
services.
Putting investors first
• Other funds or sources of
income
•Future expenditure
• Tax situation
• Capacity for loss
• Return and income needs
• Frequency of withdrawal and other
cash flow needs
• Investable capital in context of
overall wealth
• Time horizon
Attitu
de
to
• Willingness to take risk
• Investment experience
• Age
Investor
risk
ents
uirem
req
ial
ec
Sp
Obje
ctiv
es
stances
m
u
c
cir
ial
c
an
n
i
F
• Assets and liabilities
• Tax, allowances, protection
• Ethical considerations
• Currency
• Jurisdiction
• Cross-asset considerations
• Stock and sector preferences
Our investment process
9
Asset allocation
Strategic asset allocation
main developed markets of the UK, US, Europe and Japan
but we may also include exposure to emerging markets.
We believe the best way to achieve strong risk-adjusted
returns is through the right level of diversification. Our objective
is to provide investors with a broad range of investments that
are likely to have a low correlation in terms of performance.
We believe that selecting the optimal asset allocation is
the most important factor driving long-term returns. Hence
the foundation of our investment approach is based on
identifying the most effective combination of asset classes
that, over the long term, are expected to achieve the best
possible return for a given level of risk. This is the long-term
Strategic Asset Allocation (SAA) which we have designed
for each risk profile. We look at each market and use
‘optimisation models’ built specifically for Close Brothers by
Moody’s Analytics in order to better understand the projected
risk-return trade-offs of various investment scenarios.
The asset class combinations we use to build our models
are shares, bonds (government and corporate bonds)
and alternatives (see chart below), which all contribute to
performance in different ways.
Note that the value of investments in each of these asset
classes and the income from them may fall as well as rise
and is not guaranteed. An investor may get back less than
the original amount invested.
Equities tend to offer the best opportunities for generating
long-term capital growth as well as income but also carry
a greater degree of risk. Within equities, our focus is on the
Investment asset classes: return versus risk
Fixed income securities such as corporate and government
bonds can help to diversify portfolio returns away from
equities, while also providing a reliable source of income
although it can come at the expense of capital growth.
For example, in the past government bonds have been
considered less risky than equities. However, when yields
are low they may not offer protection against inflation or
capital losses if interest rates rise.
Our allocations to alternative investments tend to be a
smaller proportion of portfolios, and our selections are driven
by fundamental analysis and bottom-up security selection.
We focus on liquid, alternative investments such as property,
infrastructure, commodities and absolute return funds.
Investors with a higher risk tolerance tend to have a larger
allocation to equities and alternatives and more international
exposure. Conversely, those with a lower risk profile tend
to have a larger allocation to fixed income. Depending
on individual investment mandates, we usually orientate
portfolios towards an investor’s domestic currency to reduce
the effect of foreign exchange fluctuations. Therefore,
exposure to international securities is usually lower in more
conservative strategies. For all investments, our decisionmaking process includes a review of currency risk as part of
the investment rationale for each asset class and security.
Please note that different portfolios may reflect different points
along the efficient frontier* and therefore different strategic
asset allocations and ranges of tolerances around this allocation.
Strategic asset allocation: optimal mix
Risk Profile 4
Balanced
Risk Profile 5
Growth
Alternatives
Shares
Lower
Bonds
Cash
Risk
Cash
Potential
returns
Return
Higher
Risk Profile 3
Conservative
Risk
Lower
Bonds
Alternatives
Shares
UK gilts
UK inflation-linked
Corporate bonds
Absolute return
Commodities
Real estate
Infrastructure
UK
US
Europe (ex UK)
Japan
Emerging markets
Cash
Bonds
Alternatives
Higher
Shares
We worked with Moody’s Analytics to develop our long-term
Strategic Asset Allocation for each risk profile
*N
ote: the ‘efficient frontier’ is a concept of modern portfolio theory which defines a set of ‘optimal’ portfolios that offer
the highest expected return for a defined level of risk or the lowest risk for a given level of expected returns.
10
Our investment process
Tactical asset allocation
We use a broad range of inputs at our SPC meetings,
including:
There can be prolonged periods when asset class returns
deviate from their long-term trends. Therefore, we need
to be willing to be active investors from both an asset
allocation and security selection perspective. We arrive at
tactical asset allocation decisions through our quarterly
Strategic Policy Committee (SPC) meetings.
•Our proprietary asset allocation model, which looks
at the relative attractiveness of different asset classes
based on valuation, earnings and macroeconomic
factors. It provides an assessment of relative returns
across equity markets as well as a valuation comparison
of equities versus bonds.
The committee is chaired by our Chief Investment Officer
and attended by all senior investment professionals. These
meetings are complemented by an ongoing discussion of
key economic and market trends.
•A systematic evaluation of market and economic
data taking into consideration changes in growth,
value, liquidity, currency and management (the current
economic, market and policy landscape). We call
this our GVLCM framework. This analysis drives our
scorecard ranking.
For our funds and house-aligned segregated portfolio
strategies, additional oversight is provided by the weekly
MAC (Multi Asset Committee) meetings which discuss and
review the tactical weightings.
The purpose of tactical asset allocation is to enhance
returns and minimise losses by making adjustments to
the strategic framework. When making decisions, we aim
to tilt portfolios to reflect prevailing market conditions,
but not in a way that would alter a strategy’s risk profile
fundamentally.
•Input from leading research strategists. They share
their investment outlook and asset allocation
recommendations with the investment team, ensuring
we benefit from a diverse and broad perspective and
exchange of views.
•Structured presentations from CBAM investment
managers on key themes.
We believe these wide and disciplined inputs (see overleaf
for more detail) provide the basis for a robust challenge
and review process. SPC members discuss overweighting
and underweighting individual asset classes using all these
inputs and their judgement before arriving at an agreed
view. The latter forms the basis of our SPC conclusions.
The role of the Strategic Policy Committee
We believe that risk assets should be favoured when:
• Economic growth is improving;
• Liquidity conditions are benign;
The final application of this decision is at the discretion of the
investment team or manager. In other words, we combine
collegiately-generated investment strategies with tailoring to
meet individual objectives. As a result, all investors benefit
from the discipline of a centralised approach with the
personal attention and customisation they require.
• Valuations are not excessive; and
• Event risk or other risks are benign and/or falling.
Strategic Policy Committee (SPC) conclusions
Equities
Fixed Interest
Alternatives
Cash
++
OW
+
UW
N
UW
UW
-Equities:
FI:
-
-
US - Overweight & high conviction
UK – Neutral, stock specific
Japan – Neutral, hedged
Europe – UW reviewing Industrials
Asia – Dollar Asia
Equity Sector
Underweight
OW - UK Corporate IG
UW - Sovereign
UW - Duration
Alternatives:
Cash:
-
-
Underweight
Bottom up driven
Absolute Return Funds
Property and Infrastructure
VUW Commodities
Underweight Cash
Fixed Interest Sector
OW
1. Corporate IG
OW
2. Industrials
OW
2. Inflation Prot.
N
3. Technology
OW
3. Corporate HY
N
8. Materials
UW
8. Govt Bonds
UW
9. Telecoms
UW
9. Duration
UW
10. Utilities
UW
6.7
Equities - Bear-Bull conviction indicator
Most Bearish
0
Neither
Average
1. Health Care
Most Bullish
10
3
1
1
4
1
2
11.27
8.3%
7.1%
3.97
8.2%
0.7%
16.32
0.68
1.00
-0.9%
0.1%
50.50
-2.74
57.30
-7.00
SENTIMENT
Volatility index
Call/put ratios
Flows to equities
MOMENTUM
Distance to 50 dmav
Distance to 200 dmav
% of shares above 50 dmav
Earnings momentum
MACROECONOMICS
PMI
Consumer confidence/ current
19.55
4.01
13.80
1.99
17.52
10.9%
0.0%
3.85
12.8%
8.9%
8.90
12.76
11.22%
1.32
19.13%
Now
2
1
3
3
2
2
4
2
4
4
Bond ranking
Bond
10yr Government bond yield
10yr IG Corp OAS
10yr HY Corp OAS
10yr Breakeven
Equity ranking
3
3.02
3.7
4
4
2.75
1.75
2.4
4
2
2
1
4
1
4
1
2
2.87
3.72
2.54
51.58
-17.00
1.71
1.19
3.55
1.41
53.90
-11.70
-0.3%
5.3%
44.00
-1.83
21.12
0.96
1.00
1.8
2
3
1
1
2.5
1
1
4
4
2
2
2
2
2
4
20.12
2.3
3
2
2
2
3.47
1.73
4.20
2.21
52.87
78.00
0.62
0.02
56.60
39.70
-6.6%
0.2%
12.44
-1.62
28.26
1.04
2.00
31.3%
17.2%
1.61
16.6%
11.4%
8.24
19.19
11.27%
1.56
0.42%
Now
0.00
Management
2.69
1.16
4.04
2.14
2.6
2
4
3
3
3
4
Currency
56.50
81.20
-0.7%
5.0%
44.60
-0.13
3
4
1
2.11
13.65
2.45
16.24
Liquidity
3
3
14.7%
3.5%
17.35
1.52
-24.00
2
2
3
2.14
11.0%
11.1%
Value
15.22
2
1
1
2
USA
SPX index
Score 10 YR avg
Growth
15.24
6.54%
2.36
3.95%
Now
1.20
Are0.03policies
conducive to
investment return?
1.0
1
1
41.70
Is currency additive,
neutral
or detractive?
50.76
Are central banks
25.18
supportive
of
liquidity?
1.62
7.25
1.57
21.35
Do earnings visibility
justify value?
2.5
3
3
1
2
1
3
1
3
4
4
4
1
4
4
1
1
3
3
1
Is growth improving?
Japan
NKY index
Score 10 YR avg
Risk
Currency
Value
Liquidity
Value
Growth
Systematicevaluation
review
Systematic
Inputs plus judgement. Reviewed daily, weekly, monthly and quarterly.
3.10
1.53
3.89
1.74
50.44
-15.40
23.61
4.12
12.81
1.57
14.20
Europe
SX5E index
Score 10 YR avg
Global Framework
3
4
2
3
UK
UKX index
Score 10 YR avg
12.98
34.99%
1.73
15.25%
Now
09/02/2014
VALUATION
Multiples
P/E 12m forward
P/E relative to 10 yr avg
P/B next FY est.
P/B relative to 10 yr avg
Profitability
ROE-%
Growth
EPS g 2FY
EPS g 3FY
Yield
Dividend Yield next FY est.
Upside
Market weighted
Simple average
EQUITIES
Proprietary screen
Proprietary
screen
Proprietary model
Cash
Alternatives
EM
Japan
Europe
US
UK Equities
Equities
Fixed Income
V U/W
U/W
O/W
V O/W
V U/W = Very Underweight
U/W = Underweight
N = Neutral
O/W = Overweight
V O/W = Very Overweight
N
Reduce risk
where trends are deteriorating
and/ or value is excessive
Increase/Maintain risk
in response to improving economic,
liquidity and policy trends
Asset allocation
allocation scorecard
Asset
Our investment process
11
12
Our investment process
Investment research and selection
We are active investors not just from an asset allocation
perspective but also in terms of security and fund selection.
In addition to our tactical asset allocation process, we seek
to add value through the process of selecting individual
investments. We look across asset classes to identify the
most attractive opportunities.
All investment managers have both portfolio and analytical
responsibility, and contribute to the investment selection
process. They are supported by research teams dedicated
to finding opportunities in equities, fixed income and
alternatives. Many of the portfolios we manage are invested
directly in individual securities but we also have expertise in
external fund selection. As a result, we can also offer multimanager (fund of fund), active and passive strategies.
A structured decision-making process
In line with our collegiate approach, we hold regular
research meetings. They provide an opportunity to debate
new investment ideas, confirm our security selection and
listen to the views of external specialists.
The output from these meetings is a broad range of
investment ideas – the Close Brothers Core Universe. They
appear in portfolios in different ways depending on:
•Mandate profile. We manage tailored strategies and
funds, and offer different investment approaches in the
structures we use to express our views:
(1)Direct: mostly in individual securities across all asset
classes;
(2) Managed: mostly in actively managed third-party
funds; and
(3) Passive: through passive vehicles.
•Opportunity. Depending on market conditions and
the investment remit, we invest in third-party funds
to access certain specialist areas where we do not
have the expertise in house. Directly invested and
managed mandates also use passive securities if there
is a compelling reason to access a lower-cost market
exposure.
•Investor needs. Investors in our DMS and DMS-Bespoke
services (see page 20) may have certain restrictions,
tax considerations or portfolio construction needs that
influence the selection of individual investments.
Our comprehensive research capabilities guide our
investment strategies. A robust process, set out on the
following pages, backs all decisions.
Investment selection
Equities
Fixed income
Alternatives
Potential for growth and
income
Look for capital protection,
income and safety:
• Sovereign
• Investment grade
Diversify stock and bond
exposure
• Commodities
• Property
• Infrastructure
• Absolute return funds
Return on capital and income
Source opportunities on a global basis: direct, active funds and passive.
The value of investments may go down as well as up and is not guaranteed.
Our investment process
Investing in equities
Equity approach
We seek to identify mispriced opportunities in the global
equity markets in order to add value over the long term.
The equities we own typically have a combination of
the following characteristics – improving return profile,
shareholder alignment, quality bias and an attractive
valuation. We believe in free cash flow as a generator of
long-term equity returns.
Our focus is on companies with large global franchises,
a strong commitment to governance, respect for their
shareholders and high-quality management teams. We
also prefer businesses in industry sectors that can benefit
from one or more growth themes driving today’s global
economy. Additionally, we look for equities that can deliver
both income and growth.
Bear in mind the value of equities can go down as well as
up and you may get back less than you invested.
Equity team
We combine fundamental research with screening tools to
uncover opportunities. Our research takes a disciplined,
cohesive and inclusive approach that incorporates the
views of both our analysts and investment managers
working together in an open and transparent way.
13
well as 14 investment managers who are also sector
specialists. These pools of expertise come together
in sector investment teams, which review existing
investments and generate new ideas. All investment
managers contribute to the process by putting forward
ideas to review or leading the review with support from the
equity research team.
We divide analytical responsibility across global industry
sectors. Our research analysts produce detailed sector
reviews as well as ongoing analysis of core stocks held in
portfolios, competitor analysis and new ideas. The team
presents its research pipeline to investment managers
each week. The pipeline reflects the needs of investment
managers for types of exposures in portfolios and often
also the themes developed at our quarterly SPC meetings.
Some ideas are top-down or sector driven but we review
all of them from a bottom-up perspective to validate their
potential contribution to portfolio returns.
Our senior Head of Research has 22 years of experience
and is responsible for ensuring all aspects of the equity
research process are aligned as well as chairing all review
meetings. From a regional perspective, we focus on
global sectors within the main markets of the UK, US
and Europe as well as selected opportunities in Japan
and Asia. Typically, we gain exposure to emerging market
equities through third-party funds (in line with the selection
processes described on pages 17 to 19).
Our research capability comprises six research analysts
with a combined experience of more than 50 years as
Equity approach
Improving profile
We are looking for persistence of returns in, primarily, liquid large-cap
stocks with strong balance sheets and improving returns for investors.
Shareholder aligned
We like equities where management is clearly incentivised for
shareholders and where dividends or stock buybacks are a regular
feature of corporate policy.
Quality bias
We like businesses with excellent management in industries with high
barriers to entry and well-established franchises.
Attractive valuation
We are patient investors and believe in waiting to buy quality at an
attractive price.
14
Our investment process
Equity process
Our quarterly Strategic Policy Committee meeting is the
open forum where our investment teams discuss tactical
asset allocation and equity trends. From this meeting
as well as from regular discussions between investment
managers and analysts, we establish a working agenda for
research.
We also use two CBAM proprietary screens to filter
our universe of around 1,300 global, investible stocks.
Our value-based screen combines the Gordon Growth
model with consideration of a company’s profitability,
growth and quality relative to the rest of the market. This
screen identifies companies that look cheap relative
to their intrinsic values when adjusted for growth, risk
and profitability measures. It enables us to determine
whether earnings and enterprise value multiples reflect the
underlying prospects of the potential investment.
Our income screen comprises 11 variables that score
companies based on a combination of valuation, risk
profile, profitability and yield. Both screens play a role in
highlighting possible areas for further research and help to
narrow our investment universe. The screens have been
back-tested for their validity in a wide range of markets.
We use these screens and the input and judgement of
investment managers to reduce our investible universe to a
core stock list of around 350 stocks on which we focus our
fundamental research capabilities. At any given time, our
higher-conviction Close core universe (stocks we own or
might want to own) might consist of 100 names.
We undertake fundamental research using quantitative and
qualitative techniques, including analysing businesses and
financial statements in detail. We meet over 300 company
management teams every year in order to evaluate their
quality and assess their strategic intent. We also use an
expert network of industry specialists to supplement our
fundamental research through one-to-one meetings. This
access helps to improve our understanding of the sector
dynamics or product potential of the companies of interest.
We build detailed financial models, and value shares
using investment tools, typically comprising conventional
ratios as well as discounted cash flow analysis. We then
compare our financial models with the market consensus.
For example, the Credit Suisse HOLT tool informs us about
what is being discounted in share prices and growth rates,
so we can see how our own forecasts and assumptions
differ. This approach enables us to quantify the upside
opportunity we forecast for investments. It also allows us
to compare our analysis of balance sheets to check on the
structural health of a company.
Our overall security selection is also informed by detailed
sector reviews, which help us to understand companies
in the context of important trends and changes, margins
and valuations, and the outlook for revenue and/or pricing
growth within sectors and subsectors.
We assign all stock recommendations a price or total return
target, which we measure against an assessment of the
perceived risks. We monitor the performance of all ideas on
an ongoing basis against our investment criteria.
Equity research process
Proprietary screens
Qualitative
Coherent strategy
Management execution
Competitive advantage
Shareholder aware
Sector tailwind
Screen for attractive
price relative to growth
and risk
Quantitative
+
Improving, superior ROCE
Strong balance sheet
Free cash flow generation
Sustainable or improving earnings
Progressive dividends and policy
Value works over the
longer term
Not overpaying is critical
to positive investment
returns
Growth
>20% returns
Medium term
Beta agnostic
P
Income
Predictable income
Well covered dividend
Lower beta
Proprietary screens to identify value. Research for quality.
Our investment process
Investing in fixed income
Fixed income approach
We invest in the fixed income markets predominantly to
provide portfolios with an element of certainty and safety
through assets that can generate predictable cash flows
with relatively low volatility. Therefore, “risk reward” is the
mantra that we apply to all investment decisions. We look
for security of principal and income as well as transparency,
liquidity and predictability.
Our decision-making process is always predicated
on meeting these objectives. We want to capture
opportunities and control risk. So as economic and market
circumstances change we review our strategic bond
allocations and adjust them accordingly. We invest for all
economic conditions. When yields are high and expected
to fall we aim to lock in these rates. As yields rise we aim to
roll all cash flows into more attractive rates.
The focus of our research is on sovereign debt and highquality corporate bonds in the main developed markets.
From time to time, we look at high-quality unrated debt
that we believe will gain an investment grade credit rating.
Additionally we invest in inflation-linked securities to hedge
against inflation and help mitigate interest rate risk.
Bear in mind the value of fixed income can go down as well
as up and you may get back less than you invested.
Fixed income team
Our Head of Fixed Income is supported by six investment
managers and analysts with extensive experience of
investing in the government and corporate bond markets.
They comprise the fixed income investment committee,
which is responsible for identifying and assessing
opportunities.
This group meets formally each month to discuss the
latest market events, investment ideas and economic data
relevant to our positions. The fixed income committee
also plays a key role in the quarterly SPC meeting, which
reviews overall bond market dynamics and the key
macroeconomic drivers of bond investing such as interest
rates, liquidity, inflation and central bank policy as well as
yield curves and credit conditions.
Fixed income process
At the start of our process, we use filters to narrow the
investment universe from the many thousands of bonds
available. Our assessment covers a variety of factors
depending on the market:
•For government bonds we consider the macroeconomic
environment (interest rates, growth and inflation), yield
curves, supply, breakeven rates, trading trends and
index readjustment.
•For corporate bonds we consider macroeconomic
conditions, credit ratings, issue size, liquidity, yield
analysis, call features, spread dynamics, horizon analysis
and default risk. The availability of cash flow to service
the debt is a key driver of our corporate bond selection.
In line with our core investment objectives of prudently
growing wealth over the long term, we focus on finding
safe, high-quality and liquid bonds.
Factors to consider when investing in the fixed income markets
Income yield
Credit spreads
and volatility
Market liquidity
15
Credit rating
Investment idea
Shape of the yield
curve and interest rate
expectations
Duration
Inflation expectations
and breakeven yields
Macroeconomic
conditions
16
Our investment process
Investing in alternatives
work to produce this research is undertaken outside of this
forum in terms of:
Alternatives approach
• Meeting management teams and visiting companies;
We identify alternative investment opportunities through
bottom-up, fundamental research. Our allocations are
driven by finding attractive and liquid investments that meet
our criteria. We look for opportunities that are exposed to
different value drivers and risks than the other two pillars of
our multi-asset portfolios – equities and bonds.
Our team is continually on the hunt for new areas in which
to invest, where the security itself or cash flows of the
underlying investment have a low correlation with equities
or economic conditions, or both. Exposure to these
markets can improve diversification and help to reduce
maximum drawdown in times of market turmoil. The
ultimate objective is to improve risk-adjusted performance.
Please note that all market investments may fall in value as
well as rise and are not guaranteed. Hence our investment
philosophy is appropriate for longer-term investment.
Alternatives team
We have a team of six who are responsible for undertaking
research for the wider business in the area of alternative
investments. Our universe covers property, infrastructure,
renewables, commodities, leasing and convertibles.
The team comprises some of our most experienced
investment managers at CBAM who have a strong
interest in identifying attractive alternative investments.
Their research efforts are supplemented by our manager
research and passive instruments teams, which identify
external managers pursuing more absolute return types
of strategies or passive instruments giving us exposure to
commodities in the form of a liquid security.
A formal meeting is held each month to which all
investment professionals are invited to review the latest
research and investment updates. The majority of the
• Debating the pertinent issues with third-party analysts;
• Attending conferences;
• Reading sector-specific websites and literature;
• Valuing assets and setting price targets; and
• Writing research notes.
Alternatives process
The team draws on economic insights from other internal
resources, such as the SPC meetings, to add to its own
rigorous bottom-up security selection analysis. Just
as cash flow forms the heart of the equity and bond
investment process, it plays the same role within the
directly invested alternatives process.
We look at cash flow forecasts, the variability of cash flows
(risk), economic sensitivity, interest rate sensitivity, specific
risk, asset backing and leverage, diversification benefits
and positive characteristics (such as inflation protection) to
build a comprehensive picture of the investment.
Some ideas come down to valuing a series of cash flows
(which have varying degrees of certainty), while others are
based on a macroeconomic assessment. For example, the
behaviour of commodity prices requires an understanding
of the market environment as well as an analysis of
supply and demand trends. When selecting alternative
investments, we focus on liquid and quoted securities.
From time to time, we use absolute return managers or
passives in our alternatives allocation. These assessments
are carried out by our manager research or passive
instruments team (please see the research processes on
the following pages).
Sources of uncorrelated returns
Property
Infrastructure
Commodities
Bottom-up selection process
Absolute return
strategies
Our investment process
Investing in active funds
Active funds process
Active funds approach
We invest in active funds for two reasons: (1) to access
markets where we do not have the expertise in house; and,
(2) for portfolios where the investment remit is limited to
investing in third-party managers. We look for managers
with an investment process that is repeatable and easy to
understand, and where past performance is aligned with
their process and style. Importantly, we like managers
who share our own philosophy for delivering strong riskadjusted returns.
We insist on an open and honest dialogue and will not
invest in managers where we cannot conduct adequate
due diligence. We ask managers to visit CBAM and present
their capabilities to our investment team. A rigorous and
robust research programme greatly increases the likelihood
of identifying investment managers that can outperform
over the medium to long term.
Bear in mind that the value of units can go down as well as
up and you may get back less than you originally invested.
Active funds team
Multi-manager investing is one of our core strengths and
we have first-rate access to managers from all over the
world. We have a dedicated team of six professionals led
by a multi-manager professional with more than 20 years of
experience as an institutional consultant. The team meets
monthly to approve the CBAM core manager buy list.
Our fund selection process combines quantitative and
qualitative inputs and our dedicated manager research
team spend their time researching and selecting funds.
From a potential universe of 10,000 funds, the team
narrows the search to a focused group that warrant further
analysis.
Interviewing fund managers is integral to this process
and the team meets more than 400 managers each year.
Our own investment managers often form a core part
of the team allowing us to benefit from the added value
of “managers interviewing managers”. Meanwhile, we
use the Close Score, our proprietary quantitative scoring
system, which looks at factors of risk and return and
consistency over time to help identify potentially attractive
managers. Further due diligence enables us to check that
the organisation, investment philosophy and process are
aligned with ours and meet the highest standards.
Our ongoing fund selection and monitoring process
comprises four stages:
•Identification. We look for funds we believe are the best
in their sectors or regions across all asset classes. Our
research covers funds with varying styles so that we
can construct portfolios with different objectives and risk
profiles. Ideas come from a variety of sources including
industry contacts, conferences or direct approach. We
also collect data on more than 10,000 funds and use the
Close Score to provide a quantitative assessment of risk,
return and consistency over multiple time periods.
Manager research
• Experience
• Conferences
• Direct approach
• The Close Score (proprietary screening)
Identification
• Identify changes that impact
performance
• Formal review of Close Score
17
Monitoring
Review
Approval
• Monthly meetings
• Due diligence questionnaire
• Formal approval
• 400 manager meetings a year
• Identify manager skill: people,
philosophy, process
• Look for explainable performance
Our investment process
•Approval. We discuss new funds at a monthly meeting,
where the team has the opportunity to raise any
concerns. We usually meet with a manager multiple
times and complete a due diligence questionnaire before
bringing the idea for approval. Once any outstanding
questions are answered satisfactorily, and if we are
happy with the manager’s process and performance, we
add the fund to our core list.
•Monitoring. Monitoring is a continuous process,
which identifies any changes in a fund that could be
detrimental to future performance. Factors include staff
leaving, a change in investment process or corporate
action at the fund management house. We also
formally review the Close Score on a monthly basis and
make sure performance is consistent with the fund’s
philosophy and process, with any anomalies resolved by
further analysis.
Available universe of
managers
Quantitative
screens
In-depth
due diligence
Core
list
The end result is our core list of around 120 funds across
asset classes, style and region. Our investment managers
can then select those they believe will best meet the
objectives of their portfolios. A diverse range of funds, such
as absolute return, commodity and property funds, may be
used to achieve less correlated sources of returns. We also
have access to specialist funds that may not be available to
non-institutional investors.
Fund research and portfolio analysis
Fund analysis
Research report
10
,00
0
Manager selection
Portfolio analysis
40
0
•Review. We spend the bulk of our time meeting fund
managers. We aim to identify manager skill by assessing
the people, investment philosophy and process. Yet
ultimately we are looking for explainable and repeatable
performance. Understanding when a manager’s style
should outperform or underperform helps us to avoid
overreacting to short-term performance patterns.
12
0
18
Our investment process
19
Investing in Passives
Our investment process
Our investment approach
•Assessment. The team conducts due diligence on
potential new instruments against our investment criteria
in order to increase the pool of available opportunities.
We replace existing vehicles when we find more efficient
alternatives. This process combines quantitative and
qualitative criteria and results in instruments receiving
one of three classifications:
–Approved (available for investment);
–Not investible; and
–Wait list (not investible at present due to size, liquidity,
or track record and awaiting further review).
The investment process is comprised of three components:
We use passive investments to access low-cost market
exposure or for portfolios where the remit is to invest
principally in passive securities. Our passive security
selection process focuses on identifying the most costeffective and liquid index trackers that also have, in our
evaluation, low counterparty risk. The universe comprises
index trackers and both exchange-traded instruments
and notes. Passives often provide the most effective
way to invest in shorter-term tactical opportunities that
complement our core active long-term holdings.
Investing in these products may expose investors
to additional risk, for instance, risk if the product’s
counterparties fail.
Researching passive investments
We have a dedicated specialist researching passive
investments; with additional support provided by the
heads of equities and fund research. A monthly committee
meeting provides risk oversight by reviewing the approved
list of investments, approving any new instruments and
evaluating due diligence. We make the core list of passive
securities available to all investment managers, with
a clear explanation of cost, tracking error and liquidity
considerations.
Low
st
co
tra
c
u id
l
iq
t
er
of
pa
ty
rt y
Plen
ris k
or
err
ng
ki
Lo
w
Key to investing in passives*
y
Low
co
un
Index trackers need to track their index, over time
at low cost and with negligible counterparty risk.
*Investing in these instruments may expose you to additional risk.
For instance, you may be at risk if the counterparties fail.
The team prepares a data pack for all potential
investments that includes information from industry
sources, the fund’s prospectus, index providers,
instrument providers and market data providers.
•Monitoring. Continuous monitoring ensures the pool
of instruments continues to meet our criteria; and that
it is performing in line with expectations and within
acceptable parameters. In addition, monitoring ensures
instrument providers are healthy and that unnecessary
counterparty risk is kept to a minimum. We highlight any
deterioration in investment flows, liquidity, tracking error,
tracking difference, size or NAV premium/discount.
•Selection. From the available pool of investments,
we select instruments which meet the requirements
of our due diligence process. Our judgements are
based on a range of factors including cost, liquidity,
index methodology, counterparty risk, tracking error,
correlation with existing portfolio instruments and
seasonality. Most passive instruments combine
structural elements from funds, traded equities,
structured products and index swaps. Accordingly,
our selection process encompasses evaluation from
multiple perspectives including fund research, equity
research, index methodology, trading behaviour and
legal structure.
20
Our investment process
Investment strategies
Investors can access our investment expertise in a variety
of ways – through discretionary portfolios in our DMS,
DMS‑Bespoke and MPS services as well as a range of funds.
Discretionary Management Service (DMS)
Our Discretionary Management Service (DMS) is most
suitable for investors, financial advisers and intermediaries
seeking consistent performance across a range of riskrated strategies. It is the closest and most accurate
reflection of the Close investment view in a segregated
portfolio format. Our DMS offering is available for investors
with in excess of £100,000 to invest.
If investors are working with a financial adviser, they
conduct an investment suitability review. Advisers select
the most appropriate DMS strategy according to each
investor’s risk profile. In addition, we have the ability to tailor
income payments. This facility enables advisers to choose
a drawdown schedule that matches the income needs
of their investors. Our strategies can also accommodate
ethical, moral and workplace restrictions and manage
capital gains tax if requested.
Alternatively, investors can have a direct relationship with
our DMS investment manager and adviser support team.
We also offer a range of comprehensive portfolio tools.
They include detailed portfolio breakdowns and analytics
that demonstrate alignment with individual risk profiles.
Investors also receive tailored reporting including access to
our online portal, which provides detailed and up-to-date
portfolio valuation information including transaction details.
DMS-Bespoke Service
Our DMS-Bespoke Service is suitable for investors with
in excess of £500,000 to invest who are looking for a
higher degree of customisation. Bespoke portfolios can
accommodate a range of individual needs – from any
ongoing requirements to draw a regular income to full
tax considerations and any ethical restrictions. Through a
suitability review with investors, our investment managers
establish the appropriate risk profile and preference for
income and capital growth. We have internal guidelines for
each risk tolerance but we can also accommodate wider
risk bands within a given risk profile, if agreed with the
investor.
Please note that performance in DMS-Bespoke can be
different between investors with similar risk profiles owing
to the customised approach.
A common platform – a range of investment solutions
1
Asset
allocation
2
+
Security
selection
Strategic Policy Committee (SPC)
• Key macro variables.
• Economic issues and asset class themes.
• Policy implications: over and underweight by asset class.
Drives tactical
asset allocation
decisions
Fixed
income
Core universe
of researched
investments
Equity
Alternatives
}
Discretionary portfolios
Discretionary funds
Our DMS and DMS-Bespoke offerings
Directly managed, fund of funds and passive
Our investment process
Managed Portfolio Service (MPS)
Our Managed Portfolio Service is a discretionary, actively
managed service for private clients. There are four different
risk profiles to suit a range of client needs. Through MPS,
clients have access to professionally managed portfolios
invested solely in third party funds with a global outlook.
There are four strategies in the range to suit different risk
appetites and target returns. Investors can choose whether
to focus on capital growth or income, or a combination
of the two depending on requirements. Clients have the
flexibility to switch between portfolio strategies if their
circumstances or objectives change.
Investor relationship
We offer a direct relationship between investor, advisers
and dedicated investment managers. In DMS-Bespoke we
provide each investor with a Personalised Investment Policy
Statement (PIPS), which we review periodically to reconfirm
our understanding of personal circumstances and align this
with the chosen risk profile and investment strategy.
21
The fund range is constituted as an umbrella UCITS Unit
Trust, Close Discretionary Funds (“CDF”), with sub-funds for
each investment strategy across a range of approaches.
As these are pooled vehicles and we cannot customise
the strategies. As with our DMS offering, the funds have an
aligned asset allocation and security selection for a given
risk profile. Our family of funds are available in three forms:
•Close Portfolio Funds. Invested primarily in individual
securities, underpinned by our research and security
selection expertise.
•Close Managed Funds. Our ‘multi-manager range’,
which is invested in third-party active funds, underpinned
by our active manager selection process.
•Close Tactical Select. This lower-cost option reflects
our asset allocation views but invests in cost-efficient
passive instruments and is underpinned by our
disciplined passive security selection process.
We can provide individual or family-level investor reporting,
detailed quarterly valuations and access to our online
portal, which provides up-to-date information. The review
process includes face to face meetings where performance
and strategy are reviewed with the investor(s) and, where
applicable, a board of trustees or advisers.
Other services
Close’s range of funds
For more information about any of these product or service
offerings, please contact your CBAM investment manager
or adviser.
We also offer a range of funds with different risk and return
profiles. Typically, these are accessed through an adviser,
who will recommend the risk profile and appropriate fund
according to an investor’s suitability.
We also offer an Inheritance Tax planning service (“CITS”)
that affords a further enhancement to portfolio planning by
seeking to offer Business Property Relief on a portion of an
investor’s assets.
One investment engine, multiple solutions
Segregated Portfolio Services
Funds
Managed Portfolio Service
(MPS)
Discretionary Management Service
(DMS)
Diversified Income &
Income Plus
Income Plus
(Diversified Income)
Income Plus
(Diversified Income)
Conservative
Conservative
Conservative
Balanced
Balanced
Balanced
Growth
Growth
Growth
Direct, Multi-Manager, Passive
(CDF)
Fixed Income
22
Our investment process
Performance and risk
Our benchmark of success is delivering positive real returns
for a given level of risk, in the context of a changing market
environment. We assess our performance against market
indices and compare our risk and return rankings with
peer benchmarks. In our DMS-Bespoke service we offer a
customised benchmark or other comparative measure.
Investment oversight
Our performance and risk oversight involves regular reviews
to assess whether portfolios remain in line with their
objectives. The most extensive review takes place at the
quarterly Investment Review Committee meetings, which
are chaired by our Chief Investment Officer and attended
by our Chief Executive Officer and Heads of Compliance,
Distribution and Client Service. This meeting comprises a
full and highly detailed review of the performance, risk and
alignment with stated mandates of all CBAM investment
portfolios and strategies. The quarterly process is
supplemented by additional reviews.
RMS codifies agreed investment mandates and allows
us to evaluate portfolios across detailed characteristics. It
provides the up-to-date information investment managers
require to assess the risks and performance associated
with each portfolio. By understanding what is driving
returns, we can align the risk mandates more accurately
with reference to past long-term performance. We can also
undertake stress tests for a range of market scenarios to
understand how our investments might perform through
different market conditions.
We have proprietary technology for measuring and
monitoring performance and risk called the Close Risk
Monitoring System (RMS). This powerful tool supports
our investment solutions and provides a framework for
suitability governance.
Our risk system
Close RMS is a powerful investment and risk tool designed for our managers and for oversight
• Assessing portfolios across a range of risk and portfolio analytics.
• Ensuring performance, risk and suitability are aligned with the mandate.
• Understanding sources of return.
RMS Outlier One Pager - as at 30/06/2014
Client Code
Client Name
CAM003
J Q & A R Campbell's Settlement
Client Risk
A
Manager
RH
Analytics:
Score
Category
66.25
Category 4
Asset Allocation
Client Size
£124,831
Volatility
-
Concentration
Yield
11.25
0
Severe
Portfolio
0
Age score
Low
0
15
0
Significant
Profile mismatch?
19 18
-
39 38
-
23 22
27 26
31 30
35 34
42
43
76.25
87.5
98.75
66.25
31/10/2013
31/12/2013
31/03/2014
30/06/2014
Risk Return Scatter (Volatility)
1yr 1yr Region CAM003 Mthly Rt n (lhs)
4%
2yrs 2yrs Currency
ARC Growth Mthly Rtn (lhs)
ARC Growth Cum Rtn (rhs)
14%
Risk Rtn 1yr tD
CAM003
5% 6%
Mgr12%
Avg
12% 9%
HNW Avg
11% 8%
BM10%8% 6%
CAM003 Cum Rtn (rhs)
110
3yrs 3yrs 3m
Performance (Annualised Return)
108
3% 4yrs YtD
4yrs
5yrs 5yrs 12m
106
Start
2% Start
Annualised
+2%
104
Cumulative
+3%
1%
ARC
High
0
12m low
15 14
Cumulative Performance
1yr
Turnover
Position
0
Slight
Too Low
11 10
-
Asset allocation
Performance
Volatility
Concentration
Drawdown
Turnover
Yield and income objectives
Duration
Contribution
Performance
40
Flag
Reason
Rolling Risk Score
Measurement factors
Client Objective
GRO
RMS confirmed
+4%
102
WMA +5%
0%
UK Equities
+6%
100
8%
6%
4%
US Equities
##
2%
-1% Equities
World
##
Gilts
98
##
0%
CPI
2011
-2%Plus
0%
96
2%
Cash Plus
##
-3%
6%
8%
CAM003
94
QtD
YtD
Benchmark
ARC
4%
Risk & Volatility
CAM003
Manager Average
HNW Average
1yr tD
Start tD
10%
1yr
Start
3yrs
-1.1%
2.2%
1.5%
1.8%
5.5%
3.7%
5.1%
12.4%
11.4%
25.9%
54.3%
49.2%
12.9%
25.4%
21.5%
47.0%
76.2%
67.2%
-0.3%
2.3%
8.0%
37.7%
18.7%
56.0%
5.8%
8.8%
7.7%
6.3%
ARC Cautious
WMA Conservative TR*
BM
5yrs tD
Year to
Benchmark
Mgr Avg
HNW Avg
3yrs tD
QtD
Performance
CAM003
Manager Average
HNW Average
vs.
4%
Volatility (annualised standard deviation)
RPI Plus
##
8.5%
10.7%
10.6%
9.5%
5yrs
5.6%
9.1%
8.7%
7.5%
Score
0
Reason
Score
11
5.6%
9.3%
8.9%
7.8%
12m volatility is either
a downside outlier
Reason against the manager
average or lower than
expected
ARC Growth
Asset Allocation
Range
0%
10%
20%
30%
40%
50%
60%
70%
80%
60%-100%
90%
100 %
Manag er
HNW Average
CAM003
CAM003
Manag er
HNW Average
0%
10%
20%
30%
UK Equities
AA
CAM003
Manager
HNW Average
Score
5
1
2
3
4
5
6
7
8
9
10
RMS internal monitoring dashboard
UK Equities
12.1%
38.9%
O/S Equities
40.6%
42.9%
35.6%
29.6%
40%
O/S Equities
Fixed Interest
39.7%
10.4%
50%
Fixe d Interest
Commo dities
60%
Multi A sset
Commodities
0.0%
0.4%
19.0%
70%
Pro perty/Alts
Multi Asset
0.0%
0.2%
1.6%
80%
90%
100 %
Cash
Property/Alts
0.0%
0.1%
2.9%
Cash
7.6%
6.9%
5.2%
Equity-like Risk
53%
88%
85%
6.0%
40
14
Top 10
Name
UK (GOVT OF) 2.5% INDEX-LINKED 17/07/2024
ARTEMIS GLOBAL SELECT ACC
NEWTON ASIAN INCOME W NET INC
NOVARTIS AG CHF0.50 REGD
Capital Account
RIO TINTO PLC ORD 10P
AGEAS INSURANCE
ABERDEEN ASSET MANAGEMENT ORD 10P
MELROSE INDUSTRIES ORD GBP0.00111818181
Income Account
18
25
27
26
31
Other
Wgt
39.67%
15.12%
13.28%
8.48%
7.03%
4.98%
3.75%
3.64%
3.53%
0.53%
12m Perf
0.40%
3.36%
-4.81%
19.68%
15.86%
7.95%
18.57%
-
Gain / Loss
+11.6%
+2.5%
-13.1%
+5.9%
0.0%
-1.3%
-3.9%
+11.6%
-1.4%
0.0%
Test
12 month Commission Rate
29 Size of Client
No. of Positions
21 Singletons
Last Trade Window
33 Yield
Age
37
Capital Gains (£ value)
41 Capital Gains (% percentage)
CGT Restricted Unrestricted
Detail
0.0%
£124,831
10
Risk Score
0
0-6m
2.5%
65
0
0
15
0
£3,834
3.2%
Summary client suitability report
Our investment process
23
Understanding risk is an integral part of our portfolio
construction and review process. Adherence to mandate
restrictions is the responsibility of the investment
management team and is monitored independently by our
Chief Investment Officer and risk and compliance team.
Detailed portfolio summaries
We assess the suitability of portfolios across a range of
criteria including:
• Asset allocation
•Performance
•Volatility
•Concentration
•Drawdown
•Turnover
• Yield and income objectives
•Duration
•Contribution
•Aggregate performance reports for intermediaries who
have more than one investor with us and wish to analyse
how their clients are performing within and across risk
profiles, with detailed reporting analytics.
We use these measures to test the alignment of portfolios
against mandates and suitability parameters. These tests
are available daily and reviewed formally on a quarterly
basis. We have qualitative tolerance bands for each
strategy and actively aim to assess whether any portfolio
has fallen outside them.
Our risk management system (Close RMS) enables us to
generate detailed information about performance and risk:
•A summary of performance and risk against a range of
selected or customised indices relevant to the mandate.
•Aggregate performance reports for families who wish to
see consolidated reporting at the family and individual
level with detailed analytics.
To assist advisers and their clients we have produced a
separate “Guide to Risk” document. The objective of this
guide is to ensure that advisers understand how we map
our investment products and solutions to key risk and
return objectives.
Range of investor and adviser support materials
Investor summary
Intermediary report
Consolidated family summary
24
Our investment process
Reporting and support
Our discretionary investment managers build close working
relationships with investors and their advisers as well
as with intermediaries. We view it as our responsibility
to provide clear information about the investments we
manage to everyone involved.
Tailored communications
We believe in clarity and transparency of reporting,
delivered in a timely way and personalised to reflect the
investment service. We operate on the principle that
investors should be able to understand how their strategies
are aligned with their risk and return objectives.
•Quarterly valuations with a clear breakdown and
summary of our asset allocation and market views. We
also confirm our understanding of objectives and risk
tolerance each quarter.
Three core values support our commitment to reporting:
•Readable. We aim to make our reports comprehensible
in terms of how we are positioning a portfolio within the
current market environment.
At the heart of what we aim to do is to deliver a personal
investment service. Investors receive a range of tailored
communications in print and online depending on their
investment service. They include:
•Quarterly Investor Insight: our key investment strategy
publication prepared by our Chief Investment Officer,
which outlines our investment views and any changes to
the asset allocation framework.
•Annual tax reporting to support our investors’ other
advisers, such as their accountant or tax adviser.
•Holistic. We want investors to understand performance
clearly over different time periods, as well as asset
allocation breakdowns.
•Monthly factsheets for our fund range showing key
performance and holdings along with a review of
economic and market trends.
•Detailed. We share a detailed breakdown of underlying
holdings and review the rationale for key changes to
portfolio strategy.
•Online access to investor level portfolios and valuations
through our client portal.
•Annual reports for our fund range that summarise past
performance and investment strategy.
Range of investment updates
Quarterly investment publication
Monthly fund factsheets
Investor Insight
Quarterly investment views – July 2014
An elongated recovery
Following a weak first quarter, conditions in the world
economy have improved over the past two months.
We believe the recent pattern of economic growth
suggests the recovery could take longer than is typical
for this phase of the business cycle.
Equity valuations are looking stretched and we believe
further gains must come from real earnings growth.
This theme is central to our investment strategy.
The next investment phase is likely to favour security
selection as the key driver of returns. We will be looking
for companies with revenue and earnings trajectory
that can justify further price gains.
Since becoming more cautious over the first quarter,
we have put money back to work in equities. We like
four sectors in particular – consumer discretionary,
healthcare, technology and industrials.
In fixed income we have a preference for credit over
sovereign debt with a relatively short duration.
Please note that reporting will be tailored according to your requirements and investment service.
Weekly updates
Our investment process
In addition, CBAM has developed a range of more detailed
reports for investors and intermediaries who want to better
understand the characteristics underlying strategies. We
can generate these reports for individual investors, a group
of investors or aggregated for families.
Our senior investment managers are always pleased to
meet their investors and advisers as required and outlined
by each service offering. They are also available to discuss
any portfolio or market issues when requested by an
investor or adviser. In addition, our Chief Investment Officer
and investment managers produce investment updates
if and when there is a substantial change in investment
strategy or to give comfort on how we are navigating
challenging market conditions. Additionally, we hold
quarterly investment seminars to outline our investment
views and strategy.
Our approach to client service
25
Award winning reporting
Online portal for investors
Quarterly valuations for investors
Page 4 of 17
YY
Market Commentary
Asset Allocation
Account No: DIC005
Account No: DIC005
MRS B M DICKSON
Valued on: 31 December 2014
PORTFOLIO BY ASSET TYPE
We ensure investors have access to the views of the
investment team and understand what is happening in
their portfolios with full transparency. We also provide a
wide range of initiatives that support our clients. They
include next generation planning, family philanthropy, family
education seminars and family business events.
ASSET TYPE
VALUE
(£)
FIXED INTEREST
UK EQUITIES
OVERSEAS EQUITIES
PROPERTY
CASH
TOTALS
PORTFOLIO BY GEOGRAPHICAL REGION
GEOGRAPHIC REGION
UNITED KINGDOM
NORTH AMERICA
INCOME
(£)
WEIGHT
30,606
47,944
9,680
5,251
0
28 %
41 %
23 %
4%
3%
4.2%
4.5%
1.6%
4.7%
0.0%
2,588,150
93,481
100 %
3.6 %
VALUE
(£)
INCOME
(£)
1,685,151
68,732
65 %
455,914
9,680
17 %
727,056
1,072,280
596,170
110,975
81,670
WEIGHT
EUROPE
106,000
6,000
4%
ASIA PACIFIC
120,708
4,621
5%
JAPAN
GLOBAL
TOTALS
MRS B M DICKSON
YIELD
37,291
0
1%
183,087
4,448
7%
2,588,150
93,481
100 %
2014 was a year of economic divergence, marked by the re-emergence of
geopolitical tensions and a sharp drop in global energy prices. Overall global growth
remained below the pre-crisis trends and inflation was subdued, impacted by falling
oil prices. The US broadly returned to economic normality and growth, after a
disappointing Q1, exiting very liquid policies and preparing for interest rate hikes.
Taking a cue from the economy, both the US Dollar and US equities performed very
well throughout 2014. The UK followed suit. However, the British economy’s ties with
Europe have somewhat constrained the pace of the recovery and kept interest rates
at record low levels. Europe remained subdued, with the German economy clearly
decoupling from the rest of the Eurozone. Markets have been expecting the
European Central Bank to proceed with quantitative easing, picking up the baton
from the US, a theme which could very well develop in 2015. Decoupling was the
theme in emerging markets as well, as all major emerging economies followed
different paths to economic development and produced very different returns on their
financial assets.
During the last quarter of the year, US and Japanese equities continued on a steady
upward trajectory. Q4 saw a sharp fall in commodity prices (West Texas Crude Oil
fell 39%) and a stronger Dollar which augmented returns for Dollar denominated
assets of foreign investors. October was a month of particular volatility, mainly on
European growth worries, but markets rebounded strongly shortly after. Central
banks have remained mostly dovish, citing dangers of deflation and below-potential
growth while the International Monetary Fund (IMF) downgraded global growth 0.1%
to 3.3% for 2014. In Sterling terms, US equities maintained their leadership, with the
S&P500 rising 9.2% for the quarter. Japanese stocks rose 8% but a depreciating Yen
reduced Sterling returns to 1.2%. European stocks fell 0.51% as did the FTSE 100
returning -0.25%. Despite good performance by China, global emerging markets lost
0.6% as commodity exporters were a drag on overall performance. Gilts gained
6.3%, with yield on the 10 year bond falling below 2%, ending the year at 1.78% and
driving supernormal returns for fixed income investors. Sterling gained 0.1% versus
the Euro and lost 4% versus the US Dollar. The Euro fell 4% versus the Dollar.
Increased US energy independence coupled with diminishing oil demand, amidst a
Chinese slowdown and Saudi Arabia’s desire to maintain its market share, have
resulted in a sharp fall in energy prices. As a result, global energy and material
sectors underperformed in Q3, while consumer discretionary and information
technology benefitted from the trend. We estimate that cheaper energy has provided
an additional $900 billion boon for global consumers, albeit taking a toll on global
capital expenditure.
As expected, the Federal Reserve has exited quantitative easing policies
maintaining a fairly dovish stance. Markets have been predicting a rate hike in the
middle of 2015, although the Fed has repeated that an interest rate rise would be
data-driven. US Q3 GDP rose 5% on an annualised basis, as increased military
expenditure, “Obamacare” related expenses and consumption - the latter a result of
low energy prices - contributed to increased output. Employment numbers have
continued to show evidence of a strong labour market and an increase in average
wages.
UK output grew 3% (annualised) in Q3. The Bank of England maintained record-low
interest rates, citing lower energy prices and weakness from Europe. The central
bank lowered its inflation projection for the next three years below the 2% threshold,
while considering evidence of wage growth not to be inflationary but keeping pace
with productivity. The housing market has shown signs of cooling, as mortgage
lending conditions have become tighter.
European markets have had a tumultuous third quarter, as German macroeconomic
data hit a “soft patch” in October. Markets were largely unperturbed by bank stress
test results but they have been expecting the ECB to proceed with quantitative
easing to fight off the spectre of deflation and reboot growth, following
announcements by ECB Chairman Mario Draghi. However, better economic data out
of Germany after mid-November and discord in the central bank’s governing council
have delayed such a decision, which could be a catalyst for equity returns going
forward.
Page 1 of 17
Performance Summary
Valuation of Investments
Account No: DIC005
Account No: DIC005
From: 01/10/2014 To: 31/12/2014
MRS B M DICKSON
PORTFOLIO NAME
ACCOUNT
TYPE
Example
MAIN
START VALUE
30/09/2014
(£)
END VALUE
31/12/2014
(£)
STOCK/CASH
IN/OUT
(£)
2,519,055
2,588,150
0
2.8 %
2,519,055
2,588,150
0
2.8 %
Indices total return from 30/09/2014 to 31/12/2014
UK Gilts - FTSE All Gilts
2,994.53
UK Bonds - BarCap Non-Gilts
239.36
UK Equities - FTSE All Share
5,417.89
Europe - FTSE Europe ex UK (£)
United States - S&P 500 (£)
Japan - Topix (£)
3,183.42
249.69
TWRR*
OVER PERIOD
6.3 %
4.3 %
5,449.09
0.6 %
352.71
350.14
-0.7 %
2,214.84
2,419.88
9.3 %
10.19
10.32
1.3 %
Asia - FTSE Asia ex Japan (£)
689.10
710.75
Rest of World- FTSE World ex UK (£)
350.70
370.93
3.1 %
5.8 %
Source: Bloomberg
Your Portfolio is being run on a Balanced mandate with a Medium risk appetite
If the above profile is incorrect or you wish to revise it then please annotate and return the section titled "Investment Profile" at the back of this report.
* For explanation of TWRR calculations please see the 'Notes' section.
MRS B M DICKSON
HOLDING
STOCK DESCRIPTION
Valued on: 31 December 2014
BOOK
COST
(£)
CURRENT
PRICE
50,400
101,063
105.75p
£124.62
54,921
CURRENT PERCENTAGE
VALUE
OF TOTAL
(£)
(%)
GROSS
INCOME
(£)
GROSS
YIELD
(%)
FIXED INTEREST
CORPORATE BONDS
50,000
CVC CREDIT PARTNERS EURO OPPORTUNITIES LTD
100,000
FIDELITY INTERNATIONAL 7.125% 13/02/2024 GBP
Includes 321 days accrued interest of £6,266.10
50,000
LONDON STOCK EXCHANGE 4.75% 02/11/2021
Includes 59 days accrued interest of £387.09
50,000
MORRISON SUPERMARKET 3.5% JULY2026
Includes 157 days accrued interest of £746.60
50,000
SCOTTISH WIDOWS 5.5% 16/06/2023
Includes 198 days accrued interest of £1,491.78
100,000
TRANSPORT FOR LONDON 3.625% 15/05/2045
Includes 230 days accrued interest of £2,284.25
50,000
WILLIAM HILL 4.25% GTD BDS 05/06/2020 GBP
Includes 26 days accrued interest of £151.79
FLEXIBLE
70,000
229,238.53
ABERDEEN INVESTMENT ABST RTN BD D GROSS INC
NAV
LEGAL & GENERAL DYNAMIC BOND I INC
FIXED INTEREST TOTAL
52,875
130,886
2.0
4.8
2,500
7,125
4.7
5.4
£110.34
55,557
2.1
2,375
4.3
47,039
£92.38
46,937
1.8
1,750
3.7
50,094
£107.63
55,307
2.1
2,750
5.0
100,037
£110.01
112,294
4.3
3,625
3.2
48,717
£97.63
48,967
1.9
2,125
4.3
73,576
99.92p
69,944
148,479
67.305pXD
154,289
2.7
1,944
2.8
6.0
6,412
727,056
27.7
30,606
4.3
42,796
£22.33
44,660
1.7
2,680
6.0
49,776
£13.88
41,655
1.6
2,587
6.2
674,326
4.2
UK EQUITIES
OIL & GAS
2,000
ROYAL DUTCH SHELL 'B' ORD EUR0.07
BASIC MATERIALS
3,000
BHP BILLITON ORD US$0.50
Page 3 of 17
Page 5 of 17
Supporting Clients
Value added services
Family
Entrepreneurship:
Future Leaders
Family Philanthropy:
Trustee Development
Programme
Family Education &
Investment
seminars
Family Research &
Events: Family
Business Roadshow
Family Reporting: new
valuation reports which
report on the Family level
for our DMS-Bespoke service
26
Our investment process
In summary
Principles of how we invest
The disciplines we have put in place help us to drive strong
investment returns aligned with defined risk profiles. They
also allow us to maintain high levels of client satisfaction
and retention as evidenced in our annual client surveys.
In addition, a collaborative and stimulating investment
environment supports continuity in the investment team.
Our distinctive character resides in the following:
•We are inherently conservative and longer term in our
outlook.
•We recognise the importance of delivering against
investor expectations and strongly empathise and
appreciate that:
–This is an investor’s hard-earned capital.
–We need to devise investment strategies:
• at an appropriate level of risk, and
• with a keen eye to navigating downside risk.
•We believe the best way to do this is through a
diversified portfolio approach.
•Our investment strategies are the product of a
disciplined and rigorous investment approach.
Institutional quality investment management
Our institutional investment management is characterised
by the following:
•Depth of experience: we are an experienced team, with
two-thirds of our investment professionals having at
least 15 to 20 years of investment experience.
•Breadth of talent: we have more than 55 investment
professionals working together in a highly collegiate
environment, which helps to leverage this talent and
experience.
•Rigour: we believe in discipline and rigour in the
evaluation of market opportunities, which ultimately
means adding value or excess return through our
investment decisions.
•Customisation: we work together to shape the best
portfolio strategies, which can then be tailored for a
given risk profile and investor need.
•Excellent risk and performance oversight: we have built
a comprehensive range of tools to help ensure we are
delivering against investor objectives and to monitor that
portfolios are suitably aligned with investor risk profiles.
Continuous search for improvement
We never stop asking ourselves how we can improve the
disciplines and interactions we have as investors. We aim
to evolve and refine our service and benefit from access to
leading research and innovative analytical tools.
Part of improving is listening to and acting on feedback
from investors. In our annual Bespoke client survey*
conducted independently with a sample size of around
33% of the client base each year, responding investors
provided the following assessment of our services:
• An exceptionally high client satisfaction level of 96%.
•98% of clients indicated satisfaction with their dedicated
investment manager.
•95% of clients would be likely to recommend Close
Brothers Asset Management Bespoke to friends and
family.
In addition, the research indicated that clients choose
Close Brothers primarily because of the direct relationship
they have with their investment manager and their high
level of confidence in our investment service.
Through client research, we seek feedback on how we
can improve. We also engage in regular team reviews to
challenge ourselves in thinking about how we can provide
a more personal service.
We encourage feedback and would be delighted to hear
your views.
*The RFi HNW Bespoke results above are from the most recent survey
in 2014.
Our investment process
Close Brothers Group
Established in 1878, Close Brothers Group (CBG) is a
specialist financial services group engaged in banking,
securities and asset management activities. CBG is listed on
the London Stock Exchange and is a member of the FTSE
250. CBG has maintained a strong capital position and a
conservative leverage ratio. Both are comfortably ahead of all
applicable regulatory requirements.
Close Brothers Asset Management
Close Brothers Asset Management (CBAM) is an asset
management firm (part of CBG). We focus on providing
investment management and financial planning advice to
a broad range of principally UK investors, both onshore
and offshore. They include private individuals and families,
advisers and intermediaries representing investors, private
business owners as well as charities and institutions.
As a firm, we pride ourselves in the delivery of specialist
expertise and building long-term relationships. Our values are
based on several core principles:
• Our word is our bond.
• It is our duty to be conscientious.
• We do the right thing by those who put their trust in us.
• We stand firm for a prudent and conservative approach.
These values underpin our approach to asset management.
We focus on the robustness of our investment process and
the expertise and dedication of experienced investment
managers.
Our overriding aim is to deliver agreed outcomes for
investors, through a combination of institutional style
investment management combined with a personal and
comprehensive approach to service.
Why Close Brothers?
Close Brothers Group
Close Brothers
Asset Management
Our service
A trusted brand –
Long term stability
A focus on private
individuals and families
Personal and
bespoke
• Longevity: founded in 1878
• Conservatism: strong balance sheet
• Stability: FTSE 250 company
• Families and their advisers
• Institutional management
• Strong performance
• Direct access to your team
• Customised to your needs
• Relationship service
“If Close Brothers carry on as they are – I am there forever. Thank you for what you have done for us as a family.”
Source: RFi Independent Survey Report, November 2013.
27
28
Our investment process
Contact information
We invite you to meet members from our team of more than 55 investment professionals. They
are core to the investment services we provide and look forward to engaging with you directly.
Our investment team
For more information about our investment services, we would be delighted to have you contact:
Nancy Curtin
Chief Investment Officer
Head of Investments
T. 020 7426 4357
E. [email protected]
Penny Lovell
Head of Private Client Services
T. 020 7426 6247
E. [email protected]
Understanding risk
The value of investments and the income from than may fall as well as rise and is not guaranteed. An investor may not get
back the original amount invested. Past performance is not a reliable indicator of future results. Exchange rate fluctuations
may have an adverse effect on the value of non-UK investments.
Investments may not be suitable for everyone and you should only invest for the longer term. Some investments (e.g.
small companies) may be less readily realisable than others. Inflation can erode the value of your investments over time.
Important information
Unless otherwise indicated, all information and opinions expressed in this document are those of Close Brothers Asset
Management and are accurate as at September 2015. Close Brothers Asset Management is a trading name of Close
Asset Management Limited (Registered number: 01644127) and Close Asset Management (UK) Limited (Registered
number: 02998803). Both companies are part of Close Brothers Group plc, are registered in England and Wales and are
authorised and regulated by the Financial Conduct Authority. Registered office: 10 Crown Place, London EC2A 4FT. VAT
registration number: 245 5013 86.
Close Brothers Asset Management
10 Exchange Square
Primrose Street
London EC2A 2BY
www.closebrothersam.com
CBAM3303 Our investment process 02.11.15 EXP 30.11.16