Gautam Batra, chief investment officer at Signia Wealth, talks to Charlotte Moore about tax considerations and the need for a greater range of ETFs
Can you elaborate on how Signia Wealth operates?
We offer our services to clients with a minimum of £10m to invest. The largest portfolios run into the hundreds of millions. For each of our clients we design a separate portfolio. The funds in each portfolio are invested according to a bespoke set of parameters and are managed either on a discretionary or advisory basis.
How does Signia Wealth differ to other wealth managers?
Unlike many other wealth managers we are independent, so we are not tied to a particular brokerage house, bank or hedge fund. We use the most efficient products to implement a particular strategy and we do not push products. We offer more than just portfolio management; we help our clients to structure their wealth in the most tax efficient manner, although we don’t give tax advice. Our fee structure, both in terms of management and performance, is very competitive, and our strong track record has helped us to expand the business.
How does Signia Wealth use ETFs?
Our portfolios are typically built up using direct investments. Around 85% to 90% of any portfolio is held in securities which we have purchased for clients. The remaining 15% to 20% is usually invested either in active management or ETFs. We would allocate some capital to a particular active fund if they were generating superlative returns relative to the index or if an ETF does not exist for that index. We choose ETFs because we want to implement exposure with a liquid, transparent and efficient vehicle.
Why do you use ETFs in this way?
ETFs allow us to implement two important and different strategies. We could have identified a particular investment opportunity in our weekly investment forum. ETFs then enable us to quickly and cheaply exploit that opportunity. For example, in August we thought that equity markets looked quite cheap and wanted to get exposure to them. So we bought FTSE 100, S&P 500 and Eurostoxx 50 ETFs.
In June, we thought the market was underestimating the strength of German economic recovery so we bought an ETF that tracks the DAX index. It was a cheap and efficient way to make that macroeconomic play. Or sometimes we might have identified a new market where we would like to allocate money but it is difficult to find a good active route into the market. For example, we have recently decided to allocate capital to the Indian stock market. Even though we have done some due diligence on the available funds, we thought the most appropriate route for this market was to buy an ETF that quickly gave us broad coverage.
Which type of ETFs do you use?
We have to ensure the ETFs we use suit the tax profile of our clients. The profits should be accrued on a capital gains basis rather than on an income tax basis. When we want to allocate assets to a certain market, like when we want to gain exposure to the German market, we will use straight forward index tracker ETFs.
But sometimes we think that a market might have peaked and that it is due a correction. In that case we use inverse ETFs to short that market. In May, we thought the market was overvalued and there was considerable systemic risk because of the Greek situation. We will often choose leveraged inverse ETFs because they are more efficient. They allow us, for example, to allocate 5% of a portfolio to this strategy by only investing 2.5% of the capital in a two-times leveraged inverse ETF. The remaining 2.5% of the capital can then be put into a bank account to earn interest. If we want to take a negative interest rate view, then we can use an inverse bond tracker. We currently have this in our portfolios. We also use inverse sector trackers if we think there are risks in a particular area.
How do you choose your particular ETF?
Aside from tax considerations, it is critical that the ETF is liquid and the fee is commensurate with the underlying asset class, not only on a bid-offer spread basis but also in terms of management fees. The institution issuing the ETF also has to be financially sound.
What developments in the ETF market would you welcome?
Greater access to more market-specific equity trackers would be very useful. An Emerging Market ex-Japan ETF is good but it would be even better if there was, for example, a greater array of Indonesian ETFs. These funds are a great way to allocate assets to equity markets where either foreign share ownership is restricted or we might not have the necessary expertise to pick the right stocks, but we still want to implement that macroeconomic theme.
It would also be good if there were more credit ETFs. It was frustrating not to be able to exploit the negative views on the Greek government bond market earlier this year when the crisis broke. We currently find it difficult to find the necessary instruments in the credit space to exploit all of our investment views.
Gautam Batra is the chief investment officer and head of investments for Signia Wealth, which was granted FSA authorisation earlier this year. Gautam joined the firm from Coutts & Co, where he was an investment director for ten years, focusing on ultra high net worth clients. Prior to joining Coutts, he was a vice president at Citibank Private Bank for nine years.
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