Gerry Lawlor:
Good morning and welcome to our Rathbone Model Portfolio Service webinar. My name is Gerry Lawlor and I'm a Business Development Director at Rathbones, and I'm delighted to be your host today.
I'm also joined by Andrea Yung, our MPS Investment Director, and David Coombs, our Head of Multi-Asset Investments. Andrea, David, thank you both for joining us today.
Andrea Yung:
Morning.
Gerry Lawlor:
During the session, we will explore everything our uniquely diversified, actively managed, and highly cost-effective Model Portfolio Service has to offer. Andrea and David will share how this enhanced service has been constructed with three dedicated Rathbones multi-asset building blocks which will be used across seven model portfolios.
We believe this service offers a distinctive investment solution tailored to meet the needs of your clients. So the first question you may ask is: why now and why another MPS in an already overly crowded market?
Well, following the combination between Rathbones and Investec Wealth & Investment, we took our time to consider the best approach and combined Investec’s expertise in managing model portfolios and Rathbones’ long-term track record in running multi-asset portfolios.
On the 22nd of September, we launched the Rathbones MPS providing a directly invested, actively traded service using our new building block funds which are underpinned by Rathbones’ multi-asset allocation risk framework.
We are aware that lots of clients have both multi-asset and MPS options on their CIPs and therefore we wanted to provide greater choice and flexibility for you and for your clients.
So what do we think is different? We are directly invested, meaning we are accountable for every trade. There's no mechanical rebalancing. There's a zero DFM fee and the OCF is capped at 0.5%. Plus much more than that we will touch on later on.
Before we begin, I'd like to draw your attention to the right-hand side of your screen. Here you can use the Q&A tab to insert your questions and I'll come back to those later on. You can also download our latest collateral under the resources chat tab which will provide you with more information about our MPS. Finally, there's also a survey which we'd encourage you to complete. We always value your feedback and it enables us to continue to improve these sessions.
So, Andrea, turning to you, can you please kick off and tell us about the proposition and why you think we are different?
Andrea Yung:
Yeah, definitely. So if we look back and we look at the Rathbones and Invest combination, that really allowed us to review our MPS offering and what we've been able to do is take the time to review that offering and see where we could address some of the common frustrations with an MPS on-platform service.
So I think it's fair to say that we have taken a lot of time to try and get this right and we've looked at every aspect of the service. One of the ways that we've enhanced the proposition, as you've mentioned, is we've got this building block approach.
So with that, there are three actively managed funds and these funds are designed to work together and complement each other. You can't buy these funds individually. They are designed only for the MPS solution and really what this has allowed us to do is to be able to invest directly. So we've got a much broader investment universe to be able to enhance returns. And more crucially, we've got greater control over risk.
Looking at the models themselves, you've got seven models across that risk spectrum going from low risk to high risk. These models have been designed to fit the Defaqto risk ratings. So that's risk ratings 2 to 8. Essentially, it gives advisers reassurance to know that if they select a particular MPS model, we'll be managing it in line with that risk framework and within those particular parameters.
And you also mentioned as well about the cost. So we do believe that it is a very cost-effective solution. Like you say, we've got a zero DFM fee. We've got an OCF cost cap of 50 basis points. Now, in reality, that OCF probably comes in a little bit lower, but the cost cap is there because again, it provides reassurance to know that we're not going to allow those costs to drift higher over time.
And I think finally, I want to focus on transparency as well because I think one question that advisers might ask is, well, if you've only got three funds, how are we going to know what's invested in it? That's why when we've looked at the reporting and the service that we deliver, we're going to provide full look-through reporting so advisers can see under the bonnet of these three funds and they can see exactly what their clients are invested in.
So ultimately, it's about providing something that is not only cost-effective but we think really adds value for clients.
Gerry Lawlor:
Brilliant. Thank you. And a very good point about the cost actually – whilst capped at 0.5%, I think some of the strategies are coming in around 47 basis points. So yeah, great to see.
David, coming across to you – Andrea touched on the building block funds. Can you provide some more detail from your perspective please?
David Coombs:
Yeah, I mean as Andrea said, we launched these funds specifically and exclusively for the MPS. They are not available outside and that's really important because the funds themselves don't really stand alone. We do run one strategy just split between the three funds.
Perhaps I'll just go into a little bit more detail about how that works. When we talk about risk, often we talk about volatility or drawdown, but actually when you think about a client's risk profile, time horizon is a key factor that often gets missed.
So when we designed our MPS, we thought about liability matching – making sure for lower-risk clients that typically have a shorter-term time horizon. I say typically – you can't put everyone in the same boat obviously – but typically lower risk because you have less certainty around future spending patterns.
So we have the first fund called the Liquidity Fund and as it sounds, it is quite liquid, invests in liquid assets. I'll come back to that in a little bit more detail in a moment. As you might expect, you would tend to have a greater exposure to this fund in the lower-risk strategies where there's that potential demand for cash. These investments will also be less linked to equity-type risk because again, for clients of shorter time horizons who need cash quickly, you don't want to be selling equities during a period like last week when we've got some volatility around.
The second building block fund is called the Equity Type Risk Fund. This is basically the asset classes that tend to be highly correlated during periods of market distress. If we think back to 2008 – the global financial crisis – when you had a big correction in equity markets, you saw very significant falls in corporate bond markets as well. Some corporate bond funds were down nearly 40% at that time because they had quite a lot of exposure to high yield. So it's those risk-on asset classes. Typically, they're the ones that generate the higher returns if the risk-return ratio works properly. So again, you'd expect to have much more in this building block in the higher-risk funds.
The final building block fund is called the Diversifiers Fund. This is basically where you might hold some gold in the portfolio, some traditional alternative investments, precious metals for example. You might expect to see some property in here – there isn't at the moment but you might at some stage. It's also where we invest a lot in structured products. We're looking here for investment strategies that have a very low or negative correlation to both of the other two funds. So that fund might go down for a whole year but we're okay with that if the other two funds are going up.
Okay. So what's in them? And this is again what I think we're very different to many of our peers. So going back to the first fund – the Liquidity Fund – that's principally cash. That is a legitimate asset class right now. We get 25 basis points below base rate on cash interest, so not to be sniffed at given where inflation is coming down. But also sovereign bonds and any corporate bond above a double-A rating. Today, there are very few. So it's principally sovereign bonds or supranational bonds like World Bank, European Investment Bank.
These are safe-haven assets, very liquid, can trade in size at any moment in time. And we do run over £9 billion across the multi-asset suite, so liquidity is really important. It's global – US, others – and we hedge currency risk actively. Because we invest directly, we know exactly what's in the portfolio and can be precise about currency risks.
In the second fund – the Equity Risk Fund – we have global equities, principally large and mid-large cap globally. If we want small caps, we'll use ETFs tactically. Also, all corporate bonds below AA rating go into this vehicle. We treat corporate bonds as equity-type instruments. When spreads are narrow, as they are today, we have very little exposure – less than 1%. Emerging market debt goes here, private equity, industrial metals, commodities. Any risk-on asset class.
We never invest in Bitcoin, but if we did, it would sit here. And importantly, we trade actively – 24 hours a day, six days a week, including UK bank holidays. That differentiates us.
The Diversifiers Fund – about 95% is structured products. We design bespoke strategies with investment banks to dovetail with the other funds and provide negative correlation. Bought at institutional rates. We also buy put options for protection.
So that's a long answer, Gerry, but hopefully it shows how we're different and in control of all positions in real time, which is vital in volatile markets.
Gerry Lawlor:
Brilliant. Thank you. So just to confirm – we use no third-party funds whatsoever?
David Coombs:
Correct. None.
Gerry Lawlor:
Andrea, coming back to you – you mentioned efficiencies from the building block structure. Can you expand?
Andrea Yung:
Definitely. With traditional MPS on-platform, adding new exposure means checking fund availability across platforms. With building blocks, we invest directly, so it's faster and more efficient.
Also, rebalancing on-platform can leave clients out of the market for a day or two while trades settle. With building blocks, we avoid that – less cash drag, fewer CGT crystallization events, and less disruption to client accounts.
Gerry Lawlor:
David, let’s look under the bonnet – what’s happening in strategy today?
David Coombs:
Where do you start? AI. There’s talk of bubbles, huge capex, and potential disappointments. Some companies may overinvest and fail to generate returns – like dotcom parallels. Others may be disrupted entirely – Kodak moments.
We’re investing in beneficiaries like Nvidia, Taiwan Semiconductors, ASML, Cadence. We also look for companies where disruption fears are overdone – Adobe, Accenture, Booking Holdings. AI is not a theme anymore – it’s everywhere.
Geographically, US remains core – strong economy, likely rate cuts, resilient consumer. We’re adding exposure to Asia and Eastern Europe – Vietnam, Indonesia, Poland. Very little UK exposure – we’re concerned about recession risk.
Equities are fully risk-weighted. Corporate bonds – almost zero. Emerging market debt – 1%, Romania, hedged for extra return. Liquidity fund – sovereign bonds diversified globally, some long-duration UK gilts for recession hedge. Diversifiers – structured products, gold added recently with capital guarantees.
Gerry Lawlor:
Thank you. And the Mag 7 – does that become Mag 6?
David Coombs:
I question whether they were ever a block. They’re seven very different businesses. We own five – biggest conviction in Nvidia. No Meta, no Tesla – governance concerns.
Gerry Lawlor:
Andrea, risk profilers?
Andrea Yung:
Defaqto, Dynamic Planner, EV, Synaptic, Oxford Risk.
Gerry Lawlor:
Platform availability?
Andrea Yung:
14 platforms – full list on our website.
Gerry Lawlor:
David, why choose Rathbones MPS over passive?
David Coombs:
If cost is your only focus, choose passive. But if you want genuine active management – no index tracking, no third-party funds, unconstrained strategy, options for risk management, fair pricing (~0.47% OCF), transparency, and daily accrual of fees.
We’re 100% active, with minimal disruption and full reporting.
Gerry Lawlor:
Thank you both. If there are outstanding questions, we’ll follow up. For more info, contact your usual Rathbones contact or visit the link on screen.
Enjoy the rest of your day. Thank you.
