S&P Investment Advisory Services is launching a range of multi-asset passive funds into the UK and European retail markets.
Mike Thompson, president and chairman of SPIAS and CEO of S&P Global Research Europe, says traditional collective mutual funds will disappear over the next decade as investors switch to multi-asset passive strategies. He adds that the SPIAS Model Allocation Portfolios range is “a proven model” that is going to have “a big impact” and is “the future of wealth management.”
“S&P has traditionally been known as a ratings agency and index provider, but there are big growth and opportunities for the wealth advisory business,” Thompson says.
“Collective mutual funds will go away in the next seven years. People are going into passives and ETFs and moving away from active managers. The problem is most active managers underperform their benchmarks in any year, but they charge a lot of money against going into an index tracker. It is not sustainable. Very few funds can consistently outperform their benchmarks. You can get lucky by virtue of taking on a lot more risk.”
Part of S&P Global Market Intelligence, a division of S&P Global, SPIAS acts as a sub-advisor to institutional investment managers in the US and offers risk-profiled model portfolios to financial intermediary clients. In the past five years SPIAS has seen its assets under advice grow from $12.5bn business to $41bn, Thompson says.
The UK offering will mirror the US MAPs range, which offers two income products, Income Generation and Purchasing Power Preservation, and six capital appreciation portfolios: Conservative; Moderate Conservative; Moderate; Moderate Growth; Growth and Enhanced Growth. In the US range, 80 per cent of assets are in the Growth and Moderate Growth portfolios, Thompson says.
In the Growth and Moderate Growth portfolios, around 65 per cent is allocated to equities with the remainder in fixed income. Holdings in real estate and commodities are used as “revenue enhancers” but only comprise around 2 per cent.
“We don’t make bets on that stuff,” Thompson says. “But it can take the portfolio risk down. It’s a sort of hedge.”
Thompson adds that SPIAS is currently in the research stage of rolling out S&P Global Research UK MAPs to the UK, but he is hopeful it will happen by the start of 2018, if not before, with the European offering set to follow.
“We are having conversations with regional brokers and regional banks expanding into investment services,” Thompson says. “We are international, a known brand with credentials, so it is a good fit between partners. We are also wholesale; we charge 15 basis points for the model portfolios. Last year we achieved 80 basis points outperformance relative to the benchmark, so the fees were paid for and then some.”
The range will largely be run by the 30-strong team in the US, although Fabrice Jaudi, vice president of SPIAS, will be based in London as the lead portfolio manager for the UK and Europe, along with the business development team.