When Raymond James completed its £280m acquisition of Charles Stanley at the start of 2022, it bought a business with many strings to its bow – not least the £27bn in client assets and the broad research base powering the group’s bespoke, multi-asset and advisory portfolios.
It has come a long way from its traditional stockbroker roots.
Louis Coke has long been part of its journey, having joined the group in 2005. He started in the valuations department before moving on to equity trading and then investment management.
Today, he manages bespoke portfolios, heading a team of four, and specialises in inter-generational wealth.
When he started out, the company looked like a traditional stockbroking business. It could trace its roots to 1792 and was one of the oldest firms on the London Stock Exchange.
The emphasis was solely on stockpicking and its focus was predominantly on equities of the UK-based small- and medium-sized enterprise variety.
The Charles Stanley of today is completely multi-asset, having built a significant research engine, that covers a range of assets, including equities, fixed income, commodities and property, domestic and overseas assets, plus active and passive options.
The group bought passive specialist Evencore Pan Asset in 2013 to build its research capability. “We now have a full menu,” says Coke. “Some clients will want to use the whole lot, while others may just want to use two or three elements. But we can accommodate a vast range of options.”
This has been part of a recognition that in order to compete in an increasingly competitive marketplace for discretionary management, managers needed a complete toolkit.
“Countries and industries rise and fall, Coke says.
“You can’t wait until an opportunity is obvious and then move. As investors, we need to have done the groundwork well in advance to be able to bring in a range of options to manage different market environments.”
The next generation
According to Coke, the group has also built a better understanding of the educational part of wealth planning.
Its clients are a mixed selection but tend to fall into two categories, those who are business leaders or senior executives and are in the process of accumulating wealth, and those who have sold their business and are in the process of dispersing wealth to the rest of the family or to a trust.
“Where it can often go wrong is that people think they are doing a great job dishing out their wealth to family members, but they miss out on talking to the younger generation and helping them understand the journey that has created that wealth,” he explains.
“If you’re not careful, someone gets a healthy bank balance and they don’t understand what it took to make it.
“If they comprehend that this was great grandfather’s money, that he started the business after the war and didn’t take any drawdowns for years and years, they can see their moral duty to look after it.
“Until they understand that, it can be difficult to make it stick. Part of the job is investment, but a lot of it is also education.”
Coke has full flexibility to create portfolios to suit the needs and preferences of individual clients. While the group tends towards a growth style, it will look beyond that to suit individual needs.
“We’re good at adapting our style depending on the client. Some are in the accumulation phase and want to go for growth, while others are in preservation mode. We have an extensive menu of research, so they can pick and choose.”
For Charles Stanley, ‘growth’ is not about technology stocks, it is about finding those businesses that can grow their earnings over time and paying the right price.
“You need a decent multiple and decent earnings that can expand a bit. You can’t have one and not the other,” says Coke.
“We don’t want to be beholden to one sector to deliver returns. We want to measure the returns we achieve for clients in generations, not just a year or two of good growth.”
Building a portfolio starts with understanding the client’s objectives.
“Some clients absolutely love to buy and hold direct shares and are happy to invest for 10 years or more. Others may want more diversified exposure and are happy to pay fund fees for that, at which point we can call on our collectives research.”
Clients may go for a low turnover, high-conviction approach to equity selection.
“If I want market beta, the world of index funds has made that easy to do. If an individual stock has unique characteristics or the price is wrong, I can take a position with the research capability to back me up.”
Once the portfolio is built, it will change as the world changes or a client’s life changes, but they will reappraise their analysis frequently. Coke says his team is made up of different personalities, each with a unique outlook and style. He admits he is the perennial optimist, with the rest of the team good at pointing out the downsides.
This makes for creative debate and robust decision-making.
“If something isn’t working, we look again at the investment thesis. Has it fundamentally changed? Would we put more money into it? That can be a good discipline. In the case of an unexpected profit warning, for example, our default stance would be “give me a reason not to sell. You don’t usually get one profit warning and then everything is fine”.
In addition to the asset level research undertaken, the group has an investment strategy forum, which gives the base case for asset allocation.
“This sets the tone for how we see the world: should we be using the full extent of the risk budget or paring things back? What is the upside and what is the downside, the curve ball that throws everything every off balance? Where do I want to be on that spectrum? We have a multi-asset business as well, so there is a lot of sharing of ideas.”
The wider options
Coke’s area is the fully bespoke investment service, where investors have direct contact with an investment manager and the portfolio is constructed according to personal circumstances, investment objectives and risk appetite.
The minimum investment is set at £200,000. However, the research engine also feeds into the group’s ready-made portfolios, designed to meet a range of risk appetites.
There is also an advisory service, where the group gives advice and investors implement the choices themselves.
The group also has a range of do-it-yourself ideas for investors that want to go it alone and a new range of responsible model portfolios with a focus on ESG, launched in 2021.
The firm has been on a hiring spree over the past 12 months, bringing in Dan Ellis as director of investment management services, based in London, while Australian veteran Patrick Farrell also joined last year as head of research and chief investment officer, replacing outgoing Jon Cunliffe.
Recent corporate performance has been strong, with the group reporting a 7% rise in funds under management and administration to £27.4bn for the six months to the end of September.
Taking the temperature
It’s been an odd start to the year and Coke admits Charles Stanley has pared back equity exposure in the face of the significant uncertainty.
“In the first quarter of 2020, it became clear that markets would see a central bank-led liquidity-driven rally. They were going to buy their way out. We were positioned quite aggressively into that rally. Now, we’re starting to back away.”
The macroeconomic environment is very uncertain, he says, with rates, Russia, quantitative tightening and inflation all colliding at the same time.
“It is difficult to make a judgement on the next six months, so we have become quite tactical. There will be individual stock examples that are going to do well over the next three years. Rather than putting on a big order for a UK equity tracker, I’d rather pick out individual stock ideas.”
A lot of these opportunities are in the UK, which remains neglected by international investors. The strongest opportunities, as he sees it, are not in the FTSE 100, but in the FTSE 250 and below.
“The UK is a bit under-owned, particularly UK mid- and smaller companies. Sentiment has not fully recovered from Brexit and everyone wants to buy an index fund. As such, mid- and small-cap stocks are a good hunting ground.”
For the rest of the year, he remains more optimistic than many of his colleagues, though that doesn’t mean he expects significant rises in markets.
“Markets may well tread water from here. Central banks have this tightrope to walk and while they should be successful in balancing inflation and rising rates, it will take time.
“Inflation will come down, but with a lag. In the meantime, it will probably be a little like watching paint dry and we’ll have to live with that. And given the last two years, I don’t think that is too bad an outcome.”
Coke also sees the possible end to the ‘there is no alternative’ or ‘Tina’ trade. This was where low yields for fixed income meant investors had little option but to move into the stock market. However, as yields have risen, fixed income is becoming a viable alternative once again.
“It is possible to buy a five-year treasury on a decent yield, and that’s a game changer. Lots of newer investors have never seen that environment and there will be an adjustment process.”
Louis Coke joined Charles Stanley in 2005 as a clerk. He worked his way up, beginning to manage client funds in 2010. He advises families and individuals, empowering them to build, preserve and enjoy their wealth by blending technical investment skills with a deep understanding of what clients are trying to achieve over multiple generations.
This article first appeared in the May edition of Portfolio Adviser Magazine