Killik & Co (Middle East & Asia) is headed by Dan Dowding, partner and senior executive officer, who has an established client base notably in expat centres such as Singapore, Hong Kong, Spain and a growing presence in Thailand.
He works with International Adviser’s intermediary panel member Sarah Lord, who as managing director of the group’s wealth planning and a chartered financial planner, feeds back to him in an integrated way the client’s overarching holistic financial needs.
Made to measure
The investment management side to the business is Dowding’s expertise, having started his career as a portfolio manager, and he also oversees Killik & Co’s Kensington office with its UK clients.
Killik & Co was founded in 1989 by Paul Killik and Matthew Orr, and now manages over £3.4bn of assets from ten offices in the UK and the offshore hub in Dubai.
The house approach is for all the investment portfolios to be bespoke, with the entire equities universe classed at higher risk, though funds sit in a spectrum from lower to higher risk.
The time horizon for the investments is an important part of the selection criteria, and as a broad rule of thumb the longer the timeframe the more adventurous the funds can be.
The bigger picture
Flowing into this thinking is the big picture economic backdrop, which Dowding describes as “moving into an inflationary environment where money is printed like it’s going out of fashion”. Equities have done well and assets are shifting out of lower yielding government bonds, while cash is yielding very little, he argues.
“We also look at affordability. We like clients to have their rainy day money and if a client came to me and said ‘I want to buy equities. I’ve got a one year time horizon’ I would say no.”
Daily liquidity on all the investments is another requirement which rules out some asset classes. However, Dowding does use liquid hedge funds for some of the portfolios.
“We don’t ever want to be locked in to an investment. We want to be in position where we can go into cash very quickly.”
One of the funds he favours is Prusik Asian Equity Income Fund, which was not put on the buy list straight away.
“We followed the fund managers for some time after they set up the portfolio in late 2010. It launched at a particularly difficult time in the market, but it has produced pretty impressive returns. One of our key investment criteria at the moment is income, and this one has a target yield of 5% which it is achieving so we like that. “
As a region, Asia is a rich source of dividend payers, the second highest after companies listed in London, and this small, dynamic fund is about finding quality businesses that are highly cash generative which offer some protection in potentially volatile markets, Dowding says.
He also highlights a well-known global name, the Schroder Asian Total Return Fund which has been co run from inception by Robin Parbrook, based in Hong Kong, and Lee King Fuei in Singapore. They have a three-stage investment process covering stock idea generation, geographic allocation and short term tactical positioning, and the target return of 13% to 15% has consistently been exceeded.
The $300,000 offshore portfolio shown would be a starting point for a typical expat investor, says Dowding, and in Killik’s case, probably British because it has more overseas clients from the UK than any other nationality.
He characterises it as a growth orientated portfolio giving some diversification with exposure to bond funds and absolute return funds.
Importantly, the clients in the offshore space, due to the nature of the work and where they reside, mean that they are comfortable with a higher weighting in emerging markets.
“When I come across clients who have done their own stuff and run their own portfolios they will have a really high weighting to emerging markets. We’re global in our outlook as a house so just because we’re sitting in the emerging markets space it doesn’t mean that we would recommend a 100% emerging markets portfolio, unless a client gave us the mandate to do so.”
Instead, the trend has been for the in-house level of emerging markets exposure to Killik & Co portfolios to steadily grow not only for overseas clients, but UK ones too.
In terms of specific countries he picks China, but says the exposure is very targeted to particular sectors.
“Shelves of luxury goods in China are massively expanding. Volkswagen is another good example of playing the china story. Volkswagen had their best year in corporate history in 2012, and sales of these cars there are expanding exponentially.”
The US is another region where Killik & Co has been overweight, over the last couple of years: “The US was the first to take measures to try and sort out its banking system. Europe followed later. The US economy is turning a bit quicker than the other economies. Certain parts of Europe we will avoid at all costs but Germany is arguably a pretty solid economy and it’s also a play on emerging markets as they are an exporter of luxury cars, chemicals, engineering.”
Taking a thematic and cyclical approach, Dowding says you have to look at the trends and jump on the ones that you think will deliver good returns. Upping the percentage of a portfolio held in commodities and healthcare as a play on the expanding middle classes and population rises in many emerging market countries is one example he gives.
Tech heats up
Technology gets a weighting too, though Dowding puts it in the perspective of the dot com stock market bubble that burst over a decade earlier “Only with advent of the iPhone have we got the internet in our pockets. Today some of those companies are highly profitable and growing, and the rate of technological advancement is speeding up so again it’s a very investable area. We are going to get real growth from these areas.”
If the portfolio had been bigger other sector or thematic specific funds would have featured, such as those exposed to the energy or agricultural sectors.
Under the microscope
It must be difficult to get exact asset allocations and sector splits, but Dowding says one of the criteria for selecting the funds is close scrutiny of the underlying investments.
“When we’ve done our screen of the fund and we talk to the fund manager to understand the themes that they hold within the portfolio. Veritas global equity income fund sounds on the surface very generic but we buy that because it’s got an overweight position in emerging markets within the fund.”
He adds: “We use certain funds for certain themes and for larger portfolios we will use direct equities, for example to give more general exposure to a geographical region or more appropriate exposure to the major sectors that we broadly define as oil and gas, basic materials, financials, healthcare, industrials, consumer goods, telecoms, technology, utilities, and consumer services.”
If the portfolio was onshore a key difference would be more exposure to the UK, driven by the investor’s preferences. Given that they have sterling based liabilities they prefer sterling based investments.
So for UK based investors he will try to buy funds where they hedge out the currency back to sterling to smooth currency fluctuations. He would still have a reasonable weighting in the US, but slightly lower than the offshore portfolio, and more in Europe, by default because of the offshore portfolio’s overweight emerging markets position, and the comfort factor of being on the doorstep.
“People are comfortable with the names they know in the local markets. Our job is to try and educate, to show them the importance of investing overseas.”