2024 was always going to be an interesting year. Global equity indices looked fully valued, inflation was coming under control, elections loomed, and two major conflicts rumbled on in the Middle East and Ukraine.
2024 started as 2023 ended with big US techs roaring and all other investments trailing in their wake. Will this be seen with hindsight as peak ‘index fever’? FOMO, the fear of missing out, was palpable as more and more money managers quit their active fund managers and bought the index. Perhaps financial advisers and active managers were all just redundant? Index funds and an AI bot was all you needed!
Well maybe not. Since the end of June the US Nasdaq has drifted, the US dollar has weakened, and in the UK, Labour won with a healthy majority. For the last 3 months we have seen a strong reversal in fortunes with almost all of our funds outperforming our Fidelity US index fund which made just 0.6%.
Tideway’s Fund Universe Returns over the last 3 months
This is a level of outperformance we have not seen for some time, even Ruffer beat the index! Logic said it would happen and our experience told us to be patient, but in the last few years it has at times felt as if it may never happen again!
The revival in our funds which are invested away from the US and World equity indices has allowed all of our portfolios to continue to rally this year as US and World equity indices have stalled.
Note these returns allow for fund costs but not Tideway’s fees. Taking off our fees, 1% for 12 months and 0.75% for the year to date, these returns look healthy both in absolute terms, relative to inflation (now running at around 3%) and relative to our peers.
As an example, the average IA Multi Asset fund with equivalent equity weightings to our Tideway Multi Asset Balanced fund has made 12.7% in the last 12 months versus our portfolio’s 15.4%.
The outperformance is particularly strong in 2024 to date and in our fixed income funds. The average IA Sterling Corporate Bond fund has made 3% so far in 2024 with our Tideway Balanced Fixed Income portfolio making well over twice that return1.
But our equity funds are catching up and where we had been lagging due to our underweight US index exposure, we are now gaining this year. Year to date the average IA Global Equity fund is up around 9% with our equity portfolios 1-2% ahead.
Before we get too excited it’s worth reminding ourselves of where we have come from and our key task – to beat inflation.
Tideway’s Three Multi Asset Portfolios Since Inception in September 2016
2022 was an ugly year when inflation roared and investments turned south across the board, there were few places to hide. The good news is that we are getting ahead of inflation again and our Balanced and Moderate portfolios are ahead again after all fees. With the returns still available in fixed income we fully expect to see the Cautious portfolio exceed inflation after fees in the coming months.
For those interested, FE Analytics tells me the average IA Multi Asset equivalent to our Balanced fund has made approximately 30% over the same period and the average Cautious fund about 16%. So, after allowing for c 8% for Tideway’s advice and management fees over those 8 years, Tideway clients net returns are still well ahead of the average.
Further Investment Cost Reductions
On the subject of fees, the investment team confirmed we have just secured a major fee reduction in the Sanlam Credit Fund. This was one of the original Tideway funds which went to Sanlam in 2020, and which has continued to perform well, despite, in our opinion, costing too much. We have been relentless in raising this with Sanlam who finally completed a move of the fund to their lower cost platform, shaving 0.3% p.a. off the cost of the fund, equivalent to a saving of £104,000 per year for all Tideway clients. If Sanlam are good to their word and add in promised new money to the fund, we should see a further £60,000 per year savings as the fund gets bigger.
This prompted me to ask how we were doing on fund fees overall, I know the investment team are constantly mindful of this. The flock to index funds has worked in our favour with all active managers who want to stay in business looking hard at their costs and fees.
Between March 2022 and today we have cut around 0.2% on average from our fixed income fund management fees and around 0.15% off our mixed asset portfolios. In total we estimate around £500,000 p.a. in saved fees or approaching £1,000 per year on average for every client. And there is more to come.
We have just secured a discount on one of our larger equity fund holdings which will shave another £65,000 odd from fund charges. The gap between passive tracker costs and active funds is shrinking, particularly in fixed income funds and as can be seen from the first table, the justification for paying for active management might just be getting a whole lot more compelling.
1 Data from FE Analytics as of 03/10/2024.
The Autumn Budget
Hopefully if you have issues around the Budget, you are already engaged with your Tideway adviser to discuss possible action. Whether it is capital gains tax, inter-generational wealth or pensions we are here to help and there is potentially stuff to do.
If nothing else we can see Rachel Reeves’s first Budget encouraging our clients to engage with their money more and start looking at family money issues. This must be a good thing. Collaboration within families and education of the next generation are going to be my watch words for the future, this is what is going to help families protect and grow their wealth.
We are all lined up for our post budget webinar on November the 6th at 6pm with over 60 clients already registered it look set to be our biggest online event to date.
As James notes above, there have been some changes to report on the portfolio front with the merger of an existing portfolio holding, Sanlam Credit, into Sanlam’s International Credit strategy.
As set out in the official shareholder circular there were four primary reasons for the merger. ‘Merging Fund’ defined as Sanlam Credit and ‘Receiving Fund’ defined as Sanlam International Credit. Bold emphasis is Tideway’s.
- The investment policies and objectives employed by the Merging Fund and the Receiving Fund are similar; the Merging Fund and the Receiving Fund are both managed in the same way with a view to achieving the same outcome.’
- ‘Given the similarity in investment approach, the Investment Manager believes that by merging the Merging Fund and the Receiving Fund, and therefore increasing the total assets under management, the merger could provide material benefits to Shareholders of both the Merging Fund and the Receiving Fund as the ongoing costs of operating following the merger would be spread across a larger and more diversified investor base.’
- ‘The Investment Manager also believes that following the Merger, the Receiving Fund would achieve greater critical mass which would make it easier to attract new investors in the future and thus create the potential for additional economies of scale.’
- ‘The investment team in the Investment Manager that manages the Merging Fund also manages the Receiving Fund, so in terms of the team’s specific investment approach there is continuity and certainty for investors as a result of the Merger, with no proposed changes to the investment team that manages the Receiving Fund.’
Tideway agreed with the rationale presented and voted to approve the merger on behalf of our clients:
- Tideway now have better liquidity due to higher combined assets of both investment vehicles.
- Ongoing fund costs have been reduced by 0.3% from 0.88% to 0.58%, due to a lower management fee on the Sanlam International Credit fund and a larger asset base to share fixed costs.
- Should fund assets grow from here, which we expect them to do, we can expect this figure to come down further.
- Since Tom Wells became manager of the Sanlam Credit fund on 16/08/2023, the strategy has enjoyed solid performance.
- We do not expect a material change from the manager’s existing management style regarding geographical allocation or Credit Quality.
- The content of this document is for information purposes only and should not be construed as financial advice.
- Any rates of return used are for illustrative purposes only. Please be aware that the value of investments, and the income you may receive from them, cannot be guaranteed and may fall as well as rise.
- Any rates of tax referred to are correct as at the date of this document and may be subject to change in the future.
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