Skandia plans to tick all the boxes

26 October 2009 | By Neal Underwood

Skandia Investment Group (part of Old Mutual) has £53 billion in assets under management. It has more than 45 research analysts and portfolio managers.

Skandia Investment Group (SIG) is just over two years old, having been formed in October 2007 as an amalgamation of three Skandia fund companies in Britain, Ireland and Sweden.

“The creation of SIG brought together the different capabilities in the Skandia entity,” says Ryan Hughes, a senior fund manager at SIG. “In the UK we had been pretty much multi-manager, but the Dublin range were single manager funds, so it brings together the best of both. Some advisers want to contract out fund selection but other advisers are very comfortable selecting their own products.

“We’ve always taken the view that product development should be client led, and we’ve built up strong relationships with advisers. Like any group we want to build solutions that people want and need. Whether that’s more single manager or more multi-manager, it needs to focus on the needs of the customer; building specific needs rather than traditional retail products.”

John Morgan, the head of public relations at SIG, says this is where Skandia’s extensive distribution comes in useful, with people on the ground across multiple markets getting feedback on what clients want and what fund managers across the world are up to.

In September SIG saw a change of personnel at the top, with Nils Bolmstrand replacing Jamie MacLeod as chief executive officer. While it will be business as usual, Morgan says Bolmstrand’s appointment will further foster the international scope and approach of the group. “Under Nils we will do it more overtly. We want people to understand that’s the way we do things within Skandia.”

Ben Yearsley, an investment manager at Hargreaves Lansdown, says SIG has been successful in what it has done in terms of creating the brand. “They’re very visible and easy to use, and they’re easily available for advisers. They’ve got a number of interesting propositions. I know [chief investment officer] James Millard and he always seems pretty competent.”

Hughes says SIG covers more or less every asset class. “We’re lucky enough to have a large research team that gives us depth of coverage across all asset classes. Our experience really lies in manager selection, but equally building them together in portfolios as client solutions that are client led.”

One solution which Hughes says has proved successful is the Spectrum range, which offers six model portfolios to fit with clients’ risk profiles.

“It’s something we spent quite a lot of time on,” he says. “That solution fits with the Skandia risk profiling tool and is wholly linked in with that approach. It’s far more sophisticated than a simple risk profile; it includes things such as psychometric tests, and as an output you get a risk score. The Spectrum funds provide a ready-made solution that matches the client’s score. The adviser can either build the portfolio themselves or buy a ready-made solution.”

Asset allocation advice for the range comes from Watson Wyatt, and the funds have taken in assets of more than £350m in the 18 months since launch.

“It has gone down really well because the portfolios are focusing completely on the risk attitude,” says Hughes. “They cover well over 90% of the risk profiles that have been generated by the risk profile tool, so fit with the vast majority of investors in the UK.”

Manager selection is driven in exactly the same way as with SIG’s other funds, says Hughes. This involves using a hybrid approach, which gives SIG the choice of using a fund manager’s vehicle or awarding him a mandate.

“We populate them with the best fund managers. The vast majority are mandates rather than funds - we are utilising the scale of Skandia. All the hybrid approach means is we will utilise the best approach and the most appropriate vehicle,” he says.

James Davies, the head of fund research at Chartwell Investment Management, does not tend to use Skandia funds because they do not fit with Chartwell’s investment model. However, he notes the good job SIG has done with its Best Ideas range.

“The model works quite well for them. They’re good for advisers who want access to the best managers but don’t want to do the allocation. We do fund selection in house so their funds are not really appropriate for us,” says Davies.

It is three years since the launch of the Best Ideas funds range. As well as Global, UK and UK Strategic Best Ideas funds, a European Best Ideas fund is also available via the Dublin range, the first of the group’s multi-manager funds to be domiciled there. Hughes says performance on all the funds has stood the test of time, although UK Best Ideas had a tough time last year.

They need to prove they work in all market conditions and whether last year was a one off

He says: “They’ve done very well and the concept has been shown to work through what has been a pretty challenging time for stockpickers. They’re all about a concentrated portfolio of investments from high quality fund managers.”

UK Best Ideas had a tough 2008 in a market that was hugely challenging, says Hughes. “We were speaking recently, looking back to this time last year and what we were doing and what we were thinking. The market shunned anything with any perceived risks. In a concentrated portfolio you run the risk of underperformance because you’re taking significant positions away from the benchmark.

“The managers were always likely to look in different areas of the market where they thought they could generate higher returns. In the third and fourth quarters of 2008 we made a couple of manager changes. It was painful but we’re always looking at how we recover, and how we’ve done since then.”

Yearsley says the Best Ideas funds are on Hargreaves Lansdown’s buy list, despite the fact the UK fund in particular struggled last year. “The concept is quite interesting but hasn’t quite delivered yet. But we’re sticking with it. They need to prove they work in all market conditions and whether last year was a one off.”

Underlying managers on funds like the Best Ideas portfolios are monitored using a combination of approaches, says Hughes. “The beauty of using a mandate is visibility. You can see all the trades a manager is making on a daily basis. It’s a kind of evolving conversation we have with them. If there are things we want to question we can pick up the phone to them. We want to test their thesis, their investment thinking.”

He highlights the example of a fund manager who has typically added all his value over his career by being a large-cap value investor, then suddenly moving into a stock down the capitalisation scale. “Ninety-nine percent of the time we find that, when we speak with them, it actually fits perfectly with their philosophy. That’s how we manage the managers.”

SIG also meets underlying fund managers every quarter. All managers are on 24 hours’ notice of removal from a portfolio. When a manager is removed, says Hughes, it is a case of doing it when it is right for investors.

SIG has a large and diverse client base, both in terms of geographical spread and the split between retail and ­institutional markets. “It’s all about leveraging the research base you have to maximise the benefit of Skandia,” says Hughes.

This has led to some consolidation of the fund range. SIG realised that it had some legacy funds which, from talking to investors, were not necessarily the best fit in terms of requirements.

“We had active, balanced and cautious funds, but investors were looking for something more multi-asset. So we merged the balanced and cautious funds to create Skandia Diversified. Some alternatives were added in to make it truly multi-asset. This is now the core multi-asset solution SIG offers in the UK.”

A similar situation occurred with the firm’s Asset Allocator funds, which were regionally based multi-manager funds.

“Investors were telling us they were investing more on a global basis,” says Hughes. “We launched the Global Dynamic Equity funds in March this year, and in June the regional Asset Allocator funds were merged into those funds. The beauty of Ucits is that it has broadened distribution out. That’s also been one of the benefits of creating SIG. Previously in the UK we didn’t have a tactical asset allocation capability. That’s brought that into the group. The Diversified and Global Dynamic Equity funds are beneficiaries of the revised approach.”

Looking at product development, Hughes is again keen to stress this will be driven by demand. “We’re always happy to explore ideas, but it’s important that it’s investor led. We’ve got great insight into what investors want. We have an ongoing regular dialogue.”

SIG has also launched what it calls the Fund Lab, which puts various bits of the group together with the product development team, and from which it says it has generated some interesting ideas.

While assets under management and performance are probably the most important measures of success, there are some other ways of doing this, says Morgan.

“We need to ensure devices like Fund Lab are there. We need to be able to put things in place for all parties to get together - so we have to make sure someone in Hong Kong has as much input as someone in the UK. The shape of the business is largely right, but there are still a lot of boxes that need to be filled. We need to look at France, Sweden, Hong Kong and say: ‘Have we done everything?’ The markets are different and they have different priorities. It’s about identifying those opportunities. With multi-manager, single strategy, institutional, private banks, there is a whole raft of opportunities to look into. We need to make sure we’ve completely matched these opportunities.”