Adam’s Technical

Adam’s Technical – The logic behind M&T’s Discretionary Managed Funds (DFM’s)

I thought it worth re-visiting our DFM’s and look at why we did it and the effect and costs of doing so.

The way we undertook our management prior to DFM’s was becoming unmanageable.  If we carried out a large switch, as we did in December 2018, when we came out of Property Funds or when we came out of the market pre-Election, or went back in, post-Election, there were over 1500 switches and it took over two weeks to get all cases completed, as you will see later, that timescale, could prove to be disastrous for the people at the ‘end of the queue’.  Who did we contact first and who last??

We had struggled with this dilemma until we realised that the answer was staring at us. It was to return to Discretionary Management. We had discretionary funds in the 1980’s and 1990’s and it was time to return.

When we started looking into it in Mid 2019, it became evident that the Regulator placed too many onerous hurdles in our way for us to get permission directly, so we therefore needed to ‘piggy back’ someone else.

Most were extremely costly and were rejected. However, via contacts in the Financial Services world we were introduced to LGT Vestra, who’s charges were reasonable. We had numerous meetings in our offices and then went to visit their offices in London and were content.

LGT Vestra were formed to manage the assets of the Lichtenstein Royal Family and have branched out, they have been in management since 1921 and have £191.5 billion under management.

They opened in the UK in 2008.

After discussions we agreed to open four funds that were risk graded.

Restrained            Balanced Perspective       Opportunity           Income

Our two largest providers, Aviva and Aegon (formerly Cofunds) were interested in the proposals – Aviva already had DFM’s operating, Aegon did not and we would be their first!

What about charges?

Charges are an integral part of the proposition but we always felt that we could offer value.  M & T have always argued that what is most important is the net outcome for our clients.

LGT’s charges were an additional        0.3% p.a.

M&T’s charges were an additional       0.2% p.a.  – (Total 0.7% p.a.)

                            Add on charge       0.5% p.a.

However, we managed to utilise discounts that LGT had to reduce the charges levied by the Investment House such that, at outset, including the increases above, the net effect was as follows for the average portfolio:

RestrainedBalanced PerspectiveOpportunityIncome
+0.21% p.a.+0.11% p.a.-0.025% p.a.

So you can see that we had managed to only increase the charges, on average, by a small percentage and even reduce the higher risk strategy charges.  Every time we make a switch, the charges change, but at least you can see how it looked at outset.

What about performance?

We opened the DFM’s via Aviva on 17 February 2020 – so the first possible date one could enter was 19 February, if client’s answered the email immediately.

The performance of the DFM’s with Aviva since 19 February net of all charges is as follows:

RestrainedBalanced PerspectiveOpportunityFTSE 100 Index
% PERFORMANCE FROM 19/02/20 – 24/06/20% PERFORMANCE FROM 19/02/20 – 24/06/20% PERFORMANCE FROM 19/02/20 – 24/06/20% PERFORMANCE FROM 19/02/20 – 24/06/20

It should be noted that it is only four months – but what a four months to launch!

Aegon only opened ‘their gates’ on 7 May 2020.

We have encouraged clients to visit the Website: to establish our current strategy.  If you enter the website, ‘click’ on M&T Portfolios, then put in the password ‘gareth’ (all lower case), you can see where we are currently invested and all the switches we have carried out to date.

One major point you will notice is that the first switches were undertaken on 9 March.  Gareth, the Chief Executive, tends to lead the investment decisions and he was on holiday in South Africa, but due to the discretionary nature of our proposition, switched funds via a ‘phone call and avoided a lot of the falls.  We then re-invested into the market on 30 March, got some of the rebound and went defensive again on 1 May.

The point is that, with the ‘old system’ we could not have undertaken these switches, due to both geographical and time constraints.

We hope you will see that the performance, which is net of charges, more than justifies any additional costs.  Whilst it is still early days, we hope you can all see that our rhetoric at launch has been put into practice.