Graham kane, UBS's director of retail, explains why the deep value tag attached to the business no longer reflects group's investment style
UBS Asset Management is seeking to throw off its reputation as a dyed in the wool value manager developed under Philips & Drew's former chief investment officer Tony Dye and convince intermediaries it has an investment philosophy that can thrive in all market conditions.
The group's UK managing director of retail, Graham Kane, argues that the asset manager's true investment philosophy is not deep value but price to intrinsic value. This approach, which is still value-biased, provides the basis for its UK Equity, Global Optimal and Managed portfolios, the first three funds in the UBS retail range.
Since Dye's departure, the house has had a more pragmatic value bias, Kane said, which can deliver performance both in bull and bear markets.
UBS is aiming to build a mainstream retail fund offering in the UK for the first time and, according to Kane, has a strong, fundamentally driven process that will never again be beholden to the views any one individual.
Tony Dye's reputation is still associated with Philips & Drew and UBS. Is that fair?
No. During the roaring bull market, Dye took a very public stance that ultimately came good but cost the business a lot of money. Gary Brinson in the US held the same stance.
I have two comments to make on the effect of Dye's position.
Firstly, his view manifested itself in the portfolios in terms of stocks held. But more damaging to performance was an asset allocation decision to hold huge amounts of cash.
Ultimately, while a business needs strong individuals, firms need to be conscious of not taking an extreme view.
So, is UBS the deep value house many believe it to be?
No. We have a value bias. Just to be clear about this, in the institutional world, we have a very specific UK equity product that is deep value but, if you look to the totality of our business, our investment philosophy is price to intrinsic value.
Can you explain the basis for that?
What we are saying is that each company has an intrinsic value that we can calculate using a consistent discounted cashflow methodology.
What we typically want to do is buy stocks at a discount to their intrinsic value but only those in which we see a catalyst for change. This is important because stocks might be cheap simply because they are poor companies that will only get cheaper.
A company might be cheap, however, because the market has not looked at it and there may be a number of factors that could enable it to move back into fair value.
Does this style not shut you out of bull markets?
A more dyed in the wool value investor sells a stock when it gets back to fair value. We allow our holdings to cross into the growth area a bit to capture more value for investors. We don't seek to capture every last ounce out of growth stocks, however.
If you were to compare the UBS style to other active investors, which would it be closest to?
We have a similar approach to people like Anthony Bolton, who even during a raging bull market for equities delivered good returns. Other managers with a similar style are Tim Russell of HSBC and Neil Woodford of Invesco Perpetual.
Where do markets stand in terms of value?
We would argue that we are back into value. Whether we have reached the bottom yet is anyone's guess.
Why did UBS decide to hire you to launch a UK retail business?
We currently manage half of our total assets in retail funds. Being in retail is a complete no-brainer.
We have £140bn in retail but, until now, have had no retail presence in the UK, whereas we do in the US and Europe. It is an oddity that UBS didn't do this a long time ago.
Can you describe how UBS works as an investment business?
It is one completely integrated asset management business. If you are a fund manager in the UK, you have access to the same research as managers in Chicago or any of the 10 main investment management centres around the world. This includes access to research notes as well as diaries of company visits in advance.
In total, we have 450 investment professionals and are not beholden to any one individual. We believe in the value of a team approach. The most similarly structured firm in the retail world is Fidelity. In the model we are following, we are happy to have individual flair from fund managers.
How many analysts does the business have?
We have 86 equity analysts around the world in 10 countries, working along 13 sector lines. There are around 100 fixed-interest investment professionals globally.
What will the UBS fund range look like in a few years time?
I want to get to a dozen funds over the next three years looking to cover the big, established blocks of demand within the market.
If you break down industry assets under management, around 80% are in equities portfolios and around half of that is in UK funds.
What we are doing is looking at products in the UK equity, European equity, managed and income arenas. We are looking at mainstream funds and do not want to be driven into more specialist products.
At some point later on, we will add things like Japanese equities but, frankly, given the state of the Japanese economy, there is no real urgency.
You have said you will launch a US equity fund next, to be managed by Tom Digenan in Chicago. What will follow that?
Probably European equities. However, we are considering income-generating products as well, so a European fund might not be the next launched.
Who will manage the European fund if and when it is launched?
Your first three retail funds were launched less than a month ago. How have they been received?
We have received £25m in three weeks from a mixture of sources. Intermediary support has been strong but the life channel is also important. We have links to Scottish Amicable and the Prudential as well as Scottish Equitable and Scottish Life.
Setting aside process and people, what else distinguishes UBS?
Our annual management charges are industry standard at 1.5%, as are commission at 3% initial and 0.5% trail. But on our Oeic, the initial charge on the retail share class is 4%, which is lower than the industry norm.
Your head of retail sales, Simon Goodge, died in a road accident earlier this year. Have you named his successor?
Tristan Mawdsley. We have made an internal announcement but have not made an external one out of respect to Simon.
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