Switzerland may be small, but its reputation in a number of industries belies its size.
Alongside chocolate and watches, the country remains the pre-eminent wealth management centre in the world, fending off rivals such as Singapore and Hong Kong. Collective wisdom, built up over centuries, has helped it retain its position.
Mirabaud Wealth Management draws on the roots of its Swiss banking to manage wealth for its UK clients.
Having been founded in 1819 in Geneva, Mirabaud has been managing wealth for more than 200 years.
The bank has a rich pedigree, and has played a key part in the construction and development of the Swiss financial system, even helping to co-found the Geneva Stock Exchange in 1857.
Today, it has 16 offices around the world, with wealth management, asset management and corporate finance divisions in place alongside its banking capabilities. It opened a branch in London in 2017, offering advisory and discretionary portfolios to wealth management clients.
It hasn’t achieved this longevity by being flash with its clients’ cash. Chris Applin, senior portfolio manager at Mirabaud Wealth Management in London, says the company’s portfolios are designed to be “steady work-horses” for clients rather than show ponies.
“We want to outperform benchmarks and we hope to do that on a steady and repeatable basis, but we are also trying to avoid large swings up and down relative to our benchmark.
“Our investments are aligned with the length of the relationships we want to build with clients. Another key differentiator is that we invest our own capital alongside our clients’ capital.”
The shape of things
Applin says the group’s wealth management approach is top down. “We firmly believe that asset allocating for the long term is the most important driver of long-term performance, as many studies have pointed out.
“Having navigated economic cycles and financial markets for a long time, we see how structural and geopolitical trends can be potent in shaping asset prices.”
The group strives to look forward to the key structural trends at work in the economy, rather than to historical returns and correlation patterns.
The broad asset allocation decisions are taken at a group level in Switzerland. There are 10 people on the asset allocation committee in Geneva, including the CIO, CEO and chief economist.
These strategic guidelines filter down to the global product committee – fund analysts, fixed income and equity managers – who will give their views on the best way to implement that decision.
“If the recommendation is to add exposure to the US, we would hear from US-focused analysts who will have a view on a stock or fund. That is the best way to implement that decision.”
The aim, Applin says, is to provide the best risk-adjusted return within the parameters agreed with the client.
In implementing the asset allocation decisions, the group is careful how it spends its risk budget. It has a well-resourced investment team, with 85 investment professionals across the world. While the majority of its portfolios will be in collectives, they can use direct holdings where appropriate for the client.
For the collective holdings, the research team comes up with a list of active and passive funds. Portfolio managers also form part of the selection team. Applin helps onboard funds and also has responsibility for monitoring around 12-15 funds, predominantly with UK equity managers.
“We can implement a decision in lots of ways,” he says. “It depends on the mandate and how to generate the best risk-adjusted returns for clients. Most of our direct equity exposure is based in large mega-cap stocks. In contrast, we don’t have much experience with direct emerging market stocks, so there our preference would be to use active managers.
“We’re very picky on our external managers. They tend to be quite similar to us, often privately owned boutiques. We want high-conviction, concentrated portfolios with high active share. Our managers will have an edge in a particular style and will often manage their personal wealth alongside that of their clients.
“They genuinely prioritise returns over revenues. A lot of our third-party managers are soft-closed.”
The group also makes significant use of passive holdings. Around 60% of its portfolios are passive. They tend to use passive investments for areas where active managers don’t add significant value, such as government bonds, to put money to work quickly, or to implement sector views.
“At the moment,” he explains, “we have positions in US financials and US energy.ETFs are often the quickest way to deploy capital, without the idiosyncratic risks that you run owning direct investments. We tend to gravitate to using ETFs for the most efficient markets. It is a very easy way to take tactical positions.”
While this is the group’s overall approach, it may be implemented differently for each client. Applin says the group has built a diversified book of clients over its years in business. More recently it has been building a niche with entrepreneurs.
These clients come with a unique set of needs. They have often built up a concentrated position in their own company and need to diversity. In general, however, there is no typical client.
There is also no commoditisation of portfolios. If an investor wants a directly held portfolio, the team can provide it, though the majority of portfolios will be in collectives.
“Everyone is an individual here,” Applin says, “We don’t like to lump people together. There may be similarities in terms of the desire for wealth creation, but there is real divergence in terms of what people want to achieve with their capital.
“Our view is that clients should never lose sleep over what we are doing. We want to make sure they understand the long-term risk and return potential of their portfolio. Only when we really understand their risk tolerance do we begin the process.”
Sustainable and responsible investing has become an integral part of the investment process, and this can also be shaped for individual risk preferences.
For most clients, performance is measured against internal composite benchmarks that are stated at inception. They will also measure against the ARC Private Client Indices, allowing them to discuss peer group performance with clients, but also to highlight when an investment isn’t working.
They are rigorous on position-sizing, which helps ensure single mistakes don’t jeopardise performance as a whole.
“We set clear parameters for trades but don’t have automatic stop losses like an individual trader,”
Applin says. “We have trigger points that prompt us to reassess the investment thesis and try to understand if we’ve made a mistake. That said, we’re also aware we are long-term investors and need to be able to tolerate some short-term volatility.”
The current weakness in equities has come as little surprise to the group, given the broader macroeconomic and geopolitical picture. Any de-escalation of the Ukrainian conflict could take some time, with high commodity prices feeding through to weaker earnings and margins.
“We are pretty cautious generally,” Applin says. “We’re underweight equities as a whole and, at the end of April, we reduced our position in European equities back to neutral.”
He points to indicators such as the flattening of the US yield curve as a sign that the growth phase of the cycle is potentially coming to an end.
However, he is not yet convinced it suggests a recession is imminent, rather that the Federal Reserve will raise rates aggressively this year and that rate cuts could happen in 2024 once inflation has subsided to normal levels.
“We have been reducing the cyclicality of the portfolios to take into account slower economic growth,” he adds. “We have an overweight position in US healthcare. Valuations are attractive and we believe it should be attractive.
“For the time being, the portfolios are neutral on European industrials and banks, which we think will suffer from slowing growth across the eurozone. However, we have incorporated a weighting in commodity related stocks and sectors.”
One sweet spot, he believes, could be equity income mandates. The group’s equity income portfolios have generally held up well despite the turmoil, as such, their preference is still to derive income from equities rather than bonds.
On fixed income, he doesn’t think it’s the moment to take on additional interest rate exposure, given that inflation continues to outpace expectations. The group remains broadly underweight fixed income, particularly sovereign bonds. While they are keeping a close eye on rising yields, they are not moving yet.
Elsewhere in fixed income, they have some US high yield exposure, but remain cautious on European names. This is partly a reflection of their view that US growth will prove more resilient than European growth. There is also more exposure to the energy sector in the US. The portfolios also have a weighting in floating rate notes, which continue to do well as rates rise.
The other notable position for the group’s portfolios is in gold.
“We believe the gold price will remain elevated until there are concrete proposals for de-escalation in the Ukrainian conflict,” Applin explains.
“Equally, gold can provide additional diversification during a period of stagflation, which we don’t think we can rule out.”
The end result is portfolios designed to withstand the tough climate that may be ahead. In line with Swiss banking traditions, Mirabaud wants to ensure the security and stability of clients’ wealth.
Chris Applin joined Mirabaud in 2017 as a portfolio manager after spending four years at Citigroup, initially joining as an FX adviser before becoming an investment adviser. Prior to this, he was an FX and fixed income trader at an institutional quantitative research and brokerage firm.
This article first appeared in the June edition of Portfolio Adviser Magazine