Constant Improvement
Tideway Market update, 19/03/2021

March 19, 2021 – Written by James Baxter

James Baxter
Managing Partner

Not much to report in investment markets this week that we have not covered already. I read the market outlooks of three big financial institutions this morning, I only needed to read one, or even ours/TS Lombard’s from a few weeks back. Inflation remains low, but a niggling worry; Government bond yields well off their lows of last summer, but unlikely to rise too far; a bullish outlook for equities as economic growth returns with a likely rotation from growth to value.

What can go wrong?

Strong consensus like this is rarely right, that’s for sure, but the truth is we don’t know exactly where it will be wrong.  So, what can we do?

As a big sailing fan and keen yacht racer it has been great to have had the Americas Cup in the background for the last few months and sad to see it end. The cross over with Formula 1 is now well established and the approach of the teams to this competition has been inspiring to watch. Like us, they are faced with knowns, unknowns, and unknown unknowns – the black swans.  So, what do they do?  They constantly improve everything they can, manage the known risks where possible, learn and improve again.  The minute a team stops improving they get beaten! 

For us and our portfolio management that means focusing on our investment processes, making sure we are diversified as best as we can be without eating into our returns too much and having the best talent we can hire at an affordable price managing your money. We must look at what has worked well, what has worked not so well and how can we improve. Nick below looks at the improvements made from moving our funds to Sanlam almost a year ago, along with an outlook on what to expect from us in the coming weeks. 

I’m pleased to report that generally the business is in fine fettle. Assets under management are higher than they have ever been, and we have a very healthy pipeline of new business which should see this grow further in the next 12 months. Our portfolios are generally performing ahead of benchmarks and our peers and we have just successfully completed our annual staff reviews. We have a great team of committed people across the whole business, all now with at least a couple of years of Tideway experience under their belts. In this regard the last 12 months has perversely been the most stable in our history, core stability in the team is key to delivering sustained improvement. 

We are renewing our office lease at 107 Leadenhall for another year, with a decent discount and some extra square meters acquired – it has even had a smart new makeover on the ground floor!  We look forward to the prospect of getting back in on a regular basis which will allow us to start to recruit again and strengthen the team further, a process we have found hard to contemplate with fully remote working.

Having visited the office yesterday I can report that the City is still eerily quiet.  Will it all pop back into life in in the next couple of months? Let us hope so.

Nick Gait
Investment Director

Sanlam Update:

Further to the above, one final piece of housekeeping to cover off. After being in lockdown since before the New Year, the end of the first quarter of 2021 is nearly upon us. As usual this will coincide with the production of your quarterly valuations supplemented by Tideway commentary and analysis on portfolio performance as well as any changes made in the quarter. We also have meetings lined up with a selection of our current fund managers in the upcoming weeks which we will look to update you on in future communications.

On another note, we are now just shy of the one-year anniversary of the ‘demerging’ of the  Tideway UCITS Funds strategies (coincidentally we are also almost exactly one year on from the low point in Global Equity markets – 23rd March 2020 for those interested with the MSCI World returning just shy of 78% including dividends since the low point!) and thought it would be timely to provide an update.

For those who wish to re-read our original announcement and rationale, please revert to our market update of April 9th, 2020. As a summary for those clients who have joined us more recently, in April last year, Tideway reached an agreement to move internal fund capabilities to Sanlam UK where Peter Doherty, who was Tideway Chief Investment Officer at the time, would take up the post as head of Fixed Interest with the rest of the Tideway Funds management team following him to Sanlam UK. I am sure you will be pleased to know that the team has enjoyed a strong start to life at Sanlam despite having less visits to their new offices than they would have originally envisioned. They have also welcomed a new joiner with Sanlam UK announcing in January this year that they would be taking on formal management of eight funds, across a variety of asset classes, formerly managed by Smith & Williamson.

One of the primary motives for the parting was Sanlam brand’s ability to attract new assets to the strategies thereby providing fresh capital to invest and in turn reduce overall running costs for existing investors. Despite the tough conditions that 2020 presented, there has been a strong start on this front with the team now managing c.£320m across the three strategies: Hybrid Capital, Credit and High-Income Real Return. The growth of these strategies has led to savings as fixed costs are shared amongst a wider group of investors with the result being less cost for the individual investor. The Total Expense Ratio (TER) of the three strategies are now, 0.76%, 0.76% and 0.77% respectively down from 0.93%, 0.90% and 1.02% at the beginning of 2020. Although fund expense ratios are not the primary factor we look at when selecting fund managers, we understand the importance of getting as good a deal as we are able and of minimising costs for our clients where possible.

The rationale for investing in these strategies has not changed with Tideway believing both Credit & Hybrid Capital asset classes representing very attractive long term investment opportunities, especially when compared to opportunities elsewhere in the fixed income space. The decision has been particularly beneficial to our investors in the first part of 2021 with meaningful outperformance over both government and corporate bond indices which were highlighted to you last month.

One year on, we are pleased to be able to say that both Sanlam’s fixed income team and Tideway’s portfolio management team are in better shape than they were in the first quarter of last year and we continue to project further improvements from both camps into the future. We believe the decision finalised one year ago has been a positive one for our clients thus far and one from which they will hopefully continue to benefit.

The Budget 2021

The Big Rotation Continues
Tideway Market Update, 05/03/2021