Allchurches Investment Management Services is the asset manager for the Ecclesiastical Insurance Group. Founded by churchmen to offer insurance protection for churches, the group now offers a range of financial services to clergy, church members and the general public, including Isas, pensions, life assurance and mortgages. Ecclesiastical is owned by Allchurches Trust, a registered charity that distributes all available profits provided by its subsidiary companies for use by the church and community.
Allchurches Investment Management Services is not a typical fund manager. The company is the investment management division of the Ecclesiastical Insurance Group. The group was originally set up in 1877 to provide insurance for church buildings. It has since expanded to provide a wide range of financial services from household and motor insurance, to with-profits and pension policies, with a client base mainly comprising clergy.The Allchurches investment team is responsible for managing two separate sets of funds totalling almost 900m in assets. About 165m of assets are invested in the Allchurches Investment Funds Oeic, comprising five subfunds. The remaining assets are invested in insurance and pension products, including life funds and unit-linked pension funds. While performance of its Oeic range is below par across the board over the past 12 months, three-year performance is strong, with all five funds in the top half of their respective sectors. Looking back further over a five-year time horizon, four of its funds are top-quartile. The small but close-knit team is led by investment director George Prescott, and includes three fund managers and three analysts. Rob Hepworth, manager of Allchurches’ Higher Income fund and co-manager of its European Growth and International Growth portfolios, says: “We are active fund managers using value-based comparative stockpicking. We also believe it is important to maintain low levels of portfolio turnover, and feel it helps to be counter-cyclical.” Hepworth describes the investment process: “The value measures we analyse include price/earnings ratios and yields, and we ensure companies have well-covered dividends. We avoid companies with aggressive accounting techniques or excessive gearing. We like to look at recovery situations, but it is often more about avoiding the dogs than picking the winners.” The investment team also makes use of external research from a wide range of brokers on both the domestic and international side. “Most of our ideas are generated internally, but we also make use of close relationships with a number of brokers. We spend a lot of time looking at small and mid-cap stocks where the larger players generally can’t get access because of liquidity issues,” says Hepworth. Analysis of accounts is important, he explains: “Cashflow statements and the tax man don’t lie.” But there is also a top-down element to the investment approach. He describes the team as generalists with an ability to analyse stocks from a global macroeconomic perspective. Mark Goodale, general manager of the EIG financial services division, says: “Two of the three managers have been at the company for over 15 years. This is rare in investment management and enables us to maintain high levels of expertise and understanding between team members.” Goodale adds: “We buy to hold and our funds have some of the lowest portfolio turnover rates in the industry. There are certain sectors we believe in and this may lead to short-term underperformance, but our long-term performance suggests that our style is right.” Despite it being the smallest fund by asset size, the Higher Income fund is currently growing at the fastest rate, according to Goodale. The portfolio has grown from 12m to more than 17m since June 30, 2004. “The Higher Income fund has excellent long-term performance. Its bias to Far East stocks is particularly attractive to certain IFAs and investors.” The fund is the only Oeic fund managed by Allchurches that does not invest exclusively in equities. The portfolio’s assets are split between global equities, bonds and cash. It is the best-performing Allchurches fund in absolute terms over the past three years, with a return of 28.8%. But there is not a marked difference between the best and worst-performers. With a return of 21.6% over the same period, the International Growth fund is bottom of the list. Hepworth says the relative underperformance of both funds over the last 12 months is partly because of their overweight positions in Asian equities. The Higher Income fund has also held a cash position, given Hepworth’s cautious view on British equities. “We see the Far East as a star-performing sector in the long-term. With exceptionally low labour costs, favourable demographics and compelling valuations, the Far East has great investment potential,” he says. “We tend to take a long-term view to investing and don’t follow the latest fashions. We place long-term bets and don’t churn portfolios for the sake of it.” Perhaps unsurprisingly, Allchurches offers an ethical fund. Managed by Sue Round, the 47m Amity fund invests in companies “who value a positive contribution to the quality of individual and community life and the environment”. Goodale says: “The Amity fund is attractive to many investors. The pedigree of the company and the association with the church provides a strong marketing angle. We are proud to have Amity as an ethical fund. We follow our own ethical criteria and have an oversight committee that monitors the fund’s investments. A retired bishop chairs the committee and people espouse the ethical values of the fund. Not all ethical funds are run with the same strict criteria.” The Credit Suisse (formerly Artemis) Premier Fund of Funds Ethical portfolio was 12% invested in the Amity portfolio at May 31, its fourth largest holding. Credit Suisse fund of funds director Robert Burdett says: “Year-to-date the Amity fund is one of the best-performing ethical funds in the portfolio. It has a risk/return focus and Allchurches has a specialist analyst dedicated to ethical investment research. On top of the positive screens, exposure to certain companies is also limited, including tobaccos.” EIG has links with a number of charities and has donated about 40m from available profits to charity over the past 10 years. It also offers investors the option of making donations to selected charities through its “Nicer Isa”, where 0.25% of savings are paid annually out of the annual management charge. Isa investors can access the group’s five Oeic funds. The sales and marketing focus of the company has also changed in an attempt to attract a wider client base. Goodale explains: “Historically the business has focused on the clergy and looking after their financial needs. But we are increasingly attracting customers from elsewhere. We took the strategic view about two years ago to start actively promoting our funds to IFAs.” To this end, Ecclesiastical has taken on a number of new sales staff to develop contacts in the intermediary market. “The bulk of assets are invested on behalf of retail customers, but with our push into the intermediary space, institutions are starting to invest, including funds of funds. We are trying to expand in the IFA sector and are looking at fund supermarkets at the moment. We feel fund platforms are becoming increasingly important.” But whether Allchurches has managed to get the message out to the wider market is questionable. Darius McDermott, managing director of Chelsea Financial Services, says: “I don’t know much about All-churches. The smaller fund management companies need to consider what they have to do to be a successful investment boutique. You need a process that works that can consistently provide strong performance and you also need some form of a brand. The boutique space is difficult to succeed in.” He adds: “The UK Equity Growth and Higher Income funds have good long-term performance with lower than average volatility. On the face of it, risk-adjusted performance figures look good.” Allchurches’ change of focus has thrown up a number of new challenges. The funds have historically developed based on what suited Allchurches’ core market – the clergy. While a number of the Oeic portfolios have attracted interest from intermediaries, marketing some of them has not been easy. Goodale says only two of the five funds in the range are attracting strong inflows of assets: the Higher Income and Amity funds. The other three funds have not fared so well. The European fund has a pan-European mandate, investing in shares of British and continental European companies. The demand for these funds in the intermediary market is generally less than for those European funds not investing in UK stocks. There are only 14 funds in the Investment Management Association’s Europe including UK sector. Contrast this with the 95 IMA Europe (ex UK) sector portfolios. “The most notable discrepancy is the European Growth fund. We recognise the issue, but the mandate appeals to the fund’s existing investors and we have to look after their needs.” The Oeic range is also heavily skewed to equities, with no pure fixed interest portfolios. Goodale says: “We are looking at the possibility of introducing a gilt fund or a corporate bond fund. This is an area not represented in our current fund range. We do have the expertise, though, as our investment team manage a large amount of fixed interest assets for our life and pension products.” The main strengths of Allchurches are the experience of the investment team and its proven results, and the ability to keep its focus on the main range of funds, says Goodale. “Being smaller than other asset managers means IFAs can get access to the decision makers. The values of the Ecclesiastical group are also a strength,” he adds. Credit Suisse’s Burdett says: “It is an interesting company with its links to the church and charities. These links may be attractive for certain investors looking to buy into socially responsible investment funds.” But Goodale acknowledges there are areas for improvement: “We are not yet well known and we are trying to do more to get the message out there. But we also need to reinforce this by keeping the performance up. We have started the push and are beginning to see steady progress. We have had a certain level of success attracting fund of funds managers, but we could do better. The focus is on continuing to grow the funds that are growing.” He adds: “Our fundamental aim for the future is to increase the size of our funds. We may also selectively add to the fund range, but we are not looking to launch funds just to follow market trends. It is possible we may make changes to fund objectives where we are not seeing sufficient growth in assets. There is also the potential to amalgamate funds.” Being generalists and having relatively low fund sizes and a small investment team means Allchurches really has to stand out in order to attract money from the wider intermediary market. With 255 funds in the IMA UK All Companies sector, Andrew Jackson’s UK Equity Growth portfolio faces stiff competition. With a large number of funds offered by big-name asset managers with access to large support teams of analysts and massive research resources, the Allchurches fund really needs to shoot the lights out to get noticed. The fact that its five-year performance is firmly in top-quartile territory is certainly a starting point, but it seems that many of the larger intermediaries just don’t know enough about Allchurches. But shooting the lights out is probably not Allchurches’ style. Adam Carruthers, investment manager at Origen, says: “We have never dealt with them. They are not a conventional boutique. You couldn’t compare them with a boutique house like Polar Capital Partners with its specialist funds.” Perhaps by shouting a lot louder and playing to strengths that appeal to the wider market, Allchurches may succeed in its aim to grow its fund range. The investment team clearly needs to remain focused on delivering top-class long-term performance. But there may be more challenges ahead.