Batra, who founded the company from scratch in September 2009 as managing director and investment strategist, together with chief executive Nathalie Dauriac-Stoebe, had produced positive returns at his former company Coutts in each of the four years from 2006, most notably in 2008.
“That caused not just John Caudwell, who is also an advisory board member at Signia Wealth, but also other clients to say ‘if you are able to do this internally perhaps you can do it even better externally’,” he says.
A global operation
Most of Signia Wealth’s clients are entrepreneurs and all of them must have at least £10m to invest, which naturally positions all their portfolios towards a global perspective with a sophisticated choice of asset types and vehicles.
“Our portfolios are totally international, so we offer clients the ability to have any currency they want but mostly that’s going to be sterling, euros or dollars in terms of their reference currency.”
As to the asset allocation, the overall picture is a specific focus on equities from a global perspective rather than having a particular home bias. On the fixed interest side, the sovereign debt part of the portfolio will focus on the reference currency but when it comes to broader high yield and emerging market debt, or convertible stocks, the full international flavour is there again.
A strong international influence also pervades hedge funds and alternative asset classes which are beginning to be larger parts of Signia Wealth’s client portfolios, and more so, going forward.
“This is not least because it is reflective of a global economy and global trade and where we feel that value can be created, it gives us the ability to allocate to areas that might be mispriced.”
The right mix
As well as using a full range of fixed income bonds, Batra explains that towards the end of last year he allocated towards structured products “which effectively form a synthetic convertible bond using derivatives in a very controlled way to deliver a particular risk objective”.
He uses ETFs, third-party products and funds, direct securities and structured products to achieve objectives but the mix of vehicles varies depending on the asset class.
So for sovereign bonds, inflation-linked bonds and corporate bonds, directly-held shares and ETFs are used, whereas for emerging markets it is only third-party funds, and for convertibles a mix of third-party funds and structured products.
On the equity side, allocation to the UK, US and Europe is on a direct share basis, with some third-party funds and ETFs also used in these regions. In emerging markets and Japan, it is just ETFs and third-party funds.
“Our equity team here can add alpha in some cases, but we would rather not second guess people on the ground,” he says.
With the alternative asset classes, a combination of absolute return funds and traditional hedge funds achieve the desired effect.
“But that asset class has to deliver something different, typically with strategies that we cannot do for our individual client portfolios. Where we are unable to do outright shorting strategies or long/short relative value strategies, that’s where we employ hedge fund managers.”
There is also the element of getting the most out of tactical asset allocation: “We meet on a weekly basis, and make asset allocation decisions on a monthly basis, but obviously markets are moving quickly and hedge funds allow us the ability to be even more tactical.”
Closet beta hedge fund strategies are avoided where possible, as he further explains.
“What we look for is hedge fund strategies that have managed well through crises, or if they have shown volatility, the ability to bounce back quite quickly after a particular drawdown.”
Building on success
Another twist to Signia’s asset allocation approach is in the area of property, where the wealth manager has bought a property in London’s Mayfair and redeveloped it.
“We sourced the funding from our clients who have raised the equity, we sourced the lending from the banks, we’ve got the developer (who we have very close links with) and our clients to effectively become a club. We’re also working on another project.”
He says he would rather not get exposure to commercial property by buying into a fund. Clients are much more interested in getting involved in specific deals where they can see 20%-plus in terms of returns and can see the value per square foot before and after the makeover.
Batra also points out that his clients are generally very property rich in terms of their assets and for that reason this asset class does not to form very much of Signia’s invested portfolios, “but where clients can see an angle on a particular opportunity then that’s worth introducing to portfolios”.
As the table shows, Signia Wealth’s typical expat balanced portfolio is currently overweight in convertible bonds, high-yield bonds and hedge funds, and underweight in sovereign bonds, emerging market debt, gold, and cash.
Part of the cash allocation has moved over to hedge funds, which has grown as from 9% to circa 15%.
His view on equities is that after a good run, there may be single digit returns this year “but with a lot more volatility and unless you’ve got some kind of downside protection this year it may look a little bit like ‘why are we in this market?’.
“Hedge funds and alternative investments give the ability to have a more solid absolute return mindset in terms of applying relative value strategies to the equity piece and also encapsulating perhaps relative value strategies in the fixed income space where there might be more of a bearish bias towards fixed income.”
So the fixed interest market continues to look challenged to Batra:“We are going to have the prospect of QE coming to an end by circa mid-year in the US and that is quite a significant weight on the fixed income piece.
Yes, the budget deficit is much more controlled in the US now but nonetheless that persistent buying is not going to be there as a backdrop.”
Rising interest rates will give a higher hurdle rate automatically for economic growth and therefore the strong recovery in growth that is being seen is going to face a challenge, he argues.
Neutral for now
Geographically, the policy is one of neutrality at the moment which he says works quite well because it favours an allocation to cheaper rated markets such as the emerging markets.
“We were fully weighted in Japan way before everybody else and fully weighted in the US all of last year, which had been the two best performing markets. We also had a very strong weighting in Europe which also in dollar terms was a very strong performing market. We were appropriately weighted in the US but the negative aspect of that was that we were also in emerging markets.”
For this year, Batra’s take is that emerging markets could perform better than people currently expect given valuations and prospects for earning growth.
There might be a bit of a re-rating in Chinese equities, if China can pursue its reform agenda, while in India, the possibility of a new government which is more market friendly could see continued better performance there as well.
“The key point I’m making is that a geographically neutral argument is not a bad place to be right now. There aren’t many standout areas where I can say I’m really positive in terms of equity markets.”