Fresh slant widens group’s appeal

18 January 2010 | By Muriel Oatham

T Bailey was founded in 1999 by the Forman Hardy family. It is an independent investment boutique, based in Nottingham, specialising in fund of funds investment. At the end of 2009, it had over £210m of funds under management. 


For T Bailey, 2009 was a year of investment, expansion and management change, but there was little slowing down for the festive season. On December 15, the specialist multi-manager boutique announced the launch of the T Bailey Growth Fund Lite, a passive-only equity fund.

“We identified an opportunity to reach a group of advisers who consistently said that they liked the T Bailey investment process and approach, but who only subscribe to passive funds,” says Philippa Gee, head of sales, marketing and communications.

Subject to Financial Services Authority approval, the fund, which will invest in a mixture of exchange traded funds (ETFs) and tracker funds, will be launched on January 25. Gee says its development has been a long-term concept, pre-dating her own arrival at the group last April.

“There has undoubtedly been growing demand for ETFs and trackers, and a number of groups have launched products to address this,” she says.

“But the risks between ETFs can differ, meaning that it is just as important for investors to choose the right ETF. We are addressing this by taking the investment process we use for our active funds and applying it to passive holdings,” she says.

The Growth Fund Lite is specifically designed to be low-cost, with its total expense ratio (TER) capped at 0.99%.

“We wanted to make a clear price commitment,” says Gee. “Price should not be a barrier to investment. With the Retail Distribution Review (RDR) imminent, and industry-wide moves towards greater transparency, we think it is the right time to launch a fund like this.” (article continues below)

The new fund is already being well-received by advisers. Justine Fearns, an investment adviser at AWD Chase de Vere, says that the Growth Fund Lite demonstrates the group’s forward-looking approach.

“Launching the passive fund shows that T Bailey are willing to embrace change. RDR is just around the corner and costs are becoming increasingly important, and they recognise this,” she says.

Fearns likes the fund’s straightforward focus on asset allocation. Darius McDermott, the managing director of Chelsea Financial Services, agrees. “Using an asset allocation strategy within cheaper vehicles is an interesting concept,” he says.

While she does not invest immediately in new funds, Fearns says she will be keeping a close watch on the progress of the Growth Fund Lite. But Paul Bovey, a director at Nelson Dean Associates, has already confirmed that he will be using the new fund.

“The Lite fund will fit well in several of our portfolios. We are seeing increasing demand for passive investment as well as increased demand for asset allocation. So I think a product which is able to manage passive investment will be very good. And the TER at 0.99% will excite a few people,” he says.

Bovey, a strong supporter of multi-manager investing, holds all four of T Bailey’s funds, first investing when the group was founded ten years ago.

He says the Growth Fund Lite demonstrates the group’s commitment to fund choice, and is enthusiastic about product innovation. “I like the way they are keeping their nose in front of the competition by introducing a different angle.”

Jason Britton, the chief investment officer at T Bailey, has been an outspoken critic of tracker funds. He says he still has reservations about using the asset class as a standalone investment. “You cannot go into a passive vehicle believing that is ‘job done’. For example, if you hold 100% of your investments in a FTSE All-Share tracker, you have more money in [a single stock such as] Vodafone or M&S than in emerging markets. Simply investing in a tracker fund is a really risky strategy,” he says.

“But strategic and tactical asset allocation can be of immense value to investors, even those who do not want active management. The Lite fund affords investors the opportunity to tap into our asset allocation skill without having to take on fund selection risk,” says Britton.

“For long-term investment, I think that active management works. But I am pragmatic enough to know there is a time for passive investment vehicles,” he adds.

“We are not saying that passive is better than active. But we recognise that investors have different needs, and that we need to be in both markets to be able to access those,” says Gee.

In terms of asset allocation, the T Bailey Growth Fund Lite will mirror the T Bailey Growth fund, the group’s flagship multi-manager offering.

The fund suffered a year of poor performance in 2008, but began to recover in 2009, ending the year with £161m under management.

“As a house, we retain a long-term performance focus, typically looking at funds over three years. But we are glad to have already seen a turnaround in results,” says Gee.

Britton attributes much of the recovery in his fund’s performance to a strengthening of the investment team. He says this was achieved through a combination of new staff and a restructuring of senior management, including a change to his own role.

The appointment of Peter Letley as chief executive officer, initially on an interim basis in July and then permanently in October, saw Britton move to the position of chief investment officer.

“This allowed Jason to concentrate purely on investment, freeing up his time to focus on funds,” says Gee. “And we hired Mark Wright, an investment analyst, from Williams de Broë, to provide further support and depth to the fund management team.”

Britton says that he did not need to fundamentally change his investment process to deliver an improvement in fund performance. “In 2008, in the midst of the financial crisis, we found that our fund selection did not work well. Good funds were underperforming and quickly becoming bad funds.

“Strengthening our investment team has allowed us to spend more time on manager selection, and to pursue a greater depth of analysis. This has really turned things round,” he says.

 

Fearns, who includes the T Bailey Growth fund on her panel, agrees that these changes have already had an impact.

“We kept hold of the fund throughout 2008, even as its performance was skewed considerably, as we believed in its longer-term story. But following the reshuffle of the investment team we can see improved performance beginning to come through, which is very positive,” she says.

Britton says that his team have used the fund’s longevity to analyse its performance. “The T Bailey Growth fund is now 10 years old. While the investment process is largely unchanged, its track record enables us to see with some certainty where we have added value,” he says.

While McDermott says that multi-manager funds do not typically make his buy lists, he likes the fund’s long-term performance and its recovery in 2009.

”I like the way they are keeping their nose in front of the competition by introducing a different angle”

But he is less enthusiastic about the group’s other funds, particularly the T Bailey Equity Income fund. “I do not like single strategy multi-manager funds, as here you are effectively paying twice for the same strategy.”

Bovey disagrees. “We like the choice the T Bailey fund range offers, including the Equity Income and Cautious Managed funds. In an increasingly professional investment environment, asset allocation skill is becoming more valuable to advisers.”

The changes to the investment team were part of wider group expansion and restructuring, funded by a £3m investment from its founders, the Forman Hardy family, made last July.

“This was not made to prop [the group] up, but to enable us to move forward and grow,” says Gee. The money was spent to support the group’s new five-year business plan, with investments in systems and third party administration capability as well as in personnel.

Fearns says this activity demonstrates the group’s underlying strength. “After a period of less-than-good performance, not many fund managers would come out and announce their growth plans,” she says. “But T Bailey faced up to its difficulties and were able to make changes to its funds and company to address them.”

As part of this growth plan, T Bailey hired several recruits to support distribution. Gee says the arrival of a new sales team at the end of last September will enable the group to extend its reach and commitment to IFAs.

“We firmly believe in the IFA model and want to support it,” says Gee. “We are considering initiatives such as training and education for advisers, particularly on subjects such as ETFs.”

“We need to find out what IFAs want from us and what we can do to deliver that. And continuing to build awareness is critical in moving the business forward,” she says.

Bovey says that he is already seeing the impact of this renewed sales focus. “T Bailey lost direction nine months or so ago, but they are definitely getting their sales and marketing back on track.”

McDermott agrees that investing in distribution is vital. “For a small group, [T Bailey] does punch above its weight in terms of media, sales and marketing. But we are certainly seeing more of it. Continuing to grow its sales and marketing presence and getting in front of more IFAs shows that it is moving in the right direction.”

While Gee says that the group’s immediate focus in 2010 will be on launching the Growth Fund Lite and promoting the Growth fund, she will not rule out further launches later in the year.

“There may well be some more fund announcements at the right time,” she says, adding that the group will consider the possibility of launching similar ‘lite’ versions of their other funds.

Both Britton and Gee are enthusiastic about the potential that challenging market conditions, anticipated over 2010, offer for multi-asset investment.

“It is the ideal opportunity for people who are actively asset allocating,” says Gee. “We will be able to spot pockets of value as they emerge, and move in and out of them accordingly.

Britton says that the coming year will be characterised by two themes. “First, every major economy will be coming out of recession, but each will do so at different levels of momentum and growth. So we will see a greater disparity in economic performance by country.”

“Second, countries will raise their interest rates at different speeds. While economic strength is not directly related to stockmarket performance, we will see greater dispersion in country and currency performance.”

“This means investors will need dynamic asset allocation, from managers who are able to move quickly, enabling them to capitalise on changing markets.”

Fearns agrees that the group is well-positioned for the coming year. “If you are placing money with a company, you want it to be thinking about the future and how it will keep momentum going. And T Bailey combines this forward outlook with a considered investment approach.”