It has been a quiet couple of weeks with a continuing steady recovery in all our portfolios. All are now up year to date, although still shy of the mid-February highs.
At Tideway we mostly use active management to deploy our clients’ capital, we don’t mind buying an index fund, if we like the constituents. We owned an S&P 500 index fund for a few years and made great profits before switching it for an actively managed fund earlier this year. Below Nick looks at that move and what some of our active equity managers have been doing in response to recent volatility. I have also highlighted recent activity in two of our fixed income funds to show active management in action.
Not following the herd and independent forward thinking is at the heart of Tideway’s DNA and this week I put pen to paper on two subjects on this topic.
A Golden Era for DB Transfers
It is ten years on from pensions freedoms and a while since I had done any ‘how are we doing’ calculations.
Executing a pension transfer after pension freedoms and advising on one took some courage from both the pension scheme member and the adviser. With a negative stance from the FCA and a historic poor track record as a transaction, most advisers put it in the too difficult box and simply declined to advise.
At Tideway I had spent most of 2012 (the firm was just a couple of years old) working with a few financially sophisticated clients on their pension options. We had noticed that between ‘A Day’ in 2006 (the introduction of the lifetime allowance) and 2012, despite the mayhem and meltdown caused by the Great Financial Crisis in 2008/9, cash equivalent transfer values (CETVs) for defined benefit pensions had gone through the roof. Was there a mistake? Were we missing something? Why would you not consider taking a transfer offer that relatively generous?
After six months of working with actuaries, scheme pension managers, and these pioneer clients, we finally completed a handful of transfers. By the time of George Osborne’s pensions freedoms announcement in 2014, we were all over it. We could see the impact of quantitative easing on bond yields and their impact on annuity prices and CETVs, and we could see it was likely to be a temporary phenomenon.
The rest is history and you can read it here along with calculations showing the gains now in hand for a typical Tideway transferee, which are substantial and still getting bigger.
Artificial Intelligence
AI must be one of the main topics of conversation in 2025:
- how will it impact?
- what will it impact?
- who will profit?
- who will be out of a job?
- and how can we use it?
are all questions being asked on a daily basis.
At Tideway we have taken on an AI consultant and with guidance from our CEO, Neil Croxford, the operations team are undertaking a number of what they describe as ‘efficiency projects’. As you will know if you have done a review recently, we are already using Microsoft’s products to record Teams meetings and AI to summarise those meetings into much shorter notes which our advisers can check off rather than create from scratch.
Next, we are looking at using AI to scrape documents and sort data we already have stored in one format or another across our records. With the client data, this will help us improve our CRM records and in time give you a richer experience when you log on to our portal. For Nick’s team, they are creating easy access to every manager meeting note, external research paper they have reviewed, or internal piece they have created to allow them quickly to reference past work and data.
In both cases these involve immense amounts of data that would historically have been both time consuming and expensive to manipulate. AI now allows us to do it in hours not days and for a few £000’s not fortunes.
Yours truly of course (paranoid about my job!) dived into a free Chat GPT and asked if it could help me execute pension income drawdown; my thoughts on what happened next can be read here.
It’s a salutary lesson on trusting these chat bots too deeply and too quickly and, of course, a reminder that so far they are completely incapable of intuitive forward looking thought. They simply look backwards and follow the herd. In that respect, the word ‘intelligent’ in an AI context is, so far, an oxymoron.
In talking to our AI specialist, I was reassured to hear his deep cynicism of the current chat bots, especially the free ones… you have been warned!
Fixed Income Funds
Looking at our equity returns versus our fixed income fund returns is the continuing story of the hare and the tortoise. So far in 2025 the tortoise is mostly in the lead, no currency risk and steady returns. What have the fixed income managers been up to?
Titan Hybrid Capital
This fund, started at Tideway and managed by Peter Doherty, invests some of the portfolio in what are known as subordinated bonds. This means the bonds prospectus allow the terms of the bond to be changed if the company issuing them gets into trouble. It could be deferring interest payments, altering the maturity date, being converted to equity, or simply being written off.
As Peter puts it: “Subordination pays the investor more along the way. The downside only really comes into play when a business gets into trouble and then you are much worse off. So by definition, we buy into larger reputable companies.”
Sorting out which are the strong reputable companies is his and his team’s job.
Two such bonds that the fund holds have been in the news this year, although you’d need to be a bond geek and have a Bloomberg terminal to have spotted them. Insurance companies have been big issuers of these bonds historically, as they were allowed to treat them like share capital in regulatory capital calculations. After the great financial crisis, that regulation is being tightened up and some of these bonds can no longer be counted in the same way. The fund has owned these bonds for high interest along the way and in the hope they will be bought back at a premium by the issuer.
AVIVA tendered to buy back its preference shares in March. The fund had owned them for many years, they paid almost 9% a year in interest, and they were offered a c10% premium on the previous day’s price to sell them back to AVIVA, giving the fund a nice boost.
LV decided not to tender for all its bonds back in May 2023, leaving a relatively small issue of bonds paying 9.44%. The fund has held those bonds expecting them to be tendered for a year or two later. LV skipped in 2024 and again in 2025 which made the news. The fund owns £12m worth of the bonds (about 4.2% of the fund) and will collect £1.15 million pounds of interest in the next 12 months, equivalent to 0.41% on the fund portfolio from one holding. The Titan team could have redeployed that money for higher interest today; some bonds in this category are paying as much as 13 -14% still from issuers you would have heard off and which are in good financial shape.
In both cases, the Titan team view the risk of default as very unlikely. In the case of LV, Peter says: “they are paying us handsomely through inertia and really poor balance sheet management.”
Artemis Short Duration Global High Yield
In the middle of February, this team took a decision to decrease the risk level in the Fund. This entailed reallocating around 5% of their single-B bond exposure into less risky BB-rated bonds.
During what they described as “the 7–10-day dislocation period” peak disorder after Liberation Day, they:
- Added to positions in beaten-up sectors: US retail, autos, and energy
- Benefited from two bond redemptions, which freed up c.2.5% of capital without needing to sell depressed assets
- Were able to buy some of the weaker performers where they maintained conviction at lower prices
In both cases the managers are not trading vast quantities of their holdings as headlines might suggest, rather they are constantly looking for small incremental improvements.
