Respected global equities expert William Francklin joined James Hambro & Partners in August. William is a US equities specialist and for two years lived in New York, managing US specialist funds. He visits the country regularly to meet company management teams. Here, alongside JH&P Chief Executive Andy Steel, he talks about his experience, his new role and how President Trump is influencing his approach to investments.
William: I started in 1981 with Morgan Grenfell Asset Management in UK equity research and then moved to their US equity research team. In 1996 I went to New York to run US specialist funds and when I returned took responsibility for the international equity assets of Morgan Grenfell’s UK pension fund business. In 1994 I moved firms and started to manage global portfolios for both UK and international private clients, it was at this time that I first worked with Andy and many of the team now here. I set up a global equity service for UK and international clients. We built up a good track record and were managing approximately £1.5bn in the strategy at one stage. It was a process very much driven by bottom-up stock picking – meeting management teams, doing detailed analysis and identifying businesses that had strong characteristics but were also attractively priced.
Andy: I’ve known William for over 30 years and he’s a really important appointment for us. He broadens our capabilities and enables us to move towards investing more and more in direct securities. We already had a strong team and having recruited people like Mark Leach, a European analyst from J O Hambro Capital Management, our international coverage was already very good. With William’s hire we’re even more confident that we are able to cover a large part of the world with really strong specialists. William’s perceived specialism is US equities, but I think what makes him exceptional is his ability to combine this with a real forte for portfolio construction. I know his performance track record and I think he’s quite simply the best global investment manager there is in the private client world.
What do you like about portfolio construction?
William: I really enjoy working with small teams who are good at picking large and mid cap, liquid companies around the world and then constructing well-balanced portfolios out of the best of all our ideas. Really knowing the management of these companies is fundamental. It’s an approach that fits well with the way JH&P believes money should be managed too – with the focus predominantly on identifying good stock ideas rather than applying a totally rigid top-down asset allocation process that puts unnecessary limitations on what can be invested in different geographic regions of the world.
Is there no top-down at all, then?
William: It’s about what’s right for the individual client and being pragmatic. Many JH&P clients benefit from the excellent work of our asset allocation team, who offer a balanced framework on which to build portfolios. Some clients though – particularly international clients – want us to build them global equity portfolios that focus purely on capturing the very best ideas and opportunities wherever they are across the world. We try to apply the best of both approaches.
Of course, there will also be times when you can’t find good ideas in some places because either the market is expensive or there are other things going on, like a financial crash! There will be times too when we can’t find good ideas anywhere and we’re not afraid when market conditions are poor to have significant cash levels. Our first priority is always capital preservation. Identifying good companies at fair value is obviously core to this, and we put a lot of effort into that. I think we probably have an unusual level of company interaction for a wealth manager – I would expect between us to see over 500 companies a year – supported by strong desk research too.
Do you spend a lot of time in the US?
William: Yes, I do. I saw a lot of companies there in June completely out of my own interest even before I had joined JH&P and I’ll be back this month. I plan to go to California later in the year too. I think any organisation like JH&P has to go to the West Coast regularly to visit companies. It’s just as much about knowing what not to invest in as knowing what to invest in. In the next decade I think that will be even more important. There are so many disruptive technologies emerging from there. A staggering amount of wealth is being created too. We now have SEC authorisation to manage money for American investors so I’m also meeting lots of families who are interested in using our service.
What attracts Americans to a firm like JH&P?
William: Many wealthy American families have offshore trusts and require a non-US money manager or at least one based outside of the US to run these. That’s not an attempt to avoid tax! They’re completely see-through in terms of tax. Other family offices do it purely for investment reasons – they want to diversify outside of the US and there’s enormous appeal in having an expert manager they can trust who is based in Europe like JH&P.
Andy: I think anxiety around the political situation in the US means more and more wealthy US individuals are challenging the traditional home bias and looking overseas for wealth management but there are very few firms in the UK who can credibly do this. Several of those who can are actually giving up their SEC registration because they are concerned about the regulatory burden but we have a strong compliance culture and a clear focus on what’s best for the client. We think if you do everything properly and you put the client first, then there shouldn’t be much to fear from the regulators. We’ve done our homework and we clearly understand the SEC compliance process.
In terms of the US, what’s your view at the moment?
William: The market is expensive. There are many world-class US companies but you just have to be careful about what price you buy them at and when. A lot of the stocks we look at are on anywhere between 21x and 25x earnings and we’re used to seeing them on between 15x and 21x earnings. So we have to be very careful, particularly in terms of investing new portfolios.
Does that mean sitting on the sidelines?
William: We’re not afraid to do that unless specifically asked not to by a client. Building a portfolio is done very carefully – when we look at returns for clients we’re looking at absolute and relative returns. Clients tend to think more in terms of absolute when the market is going up and relative when it’s going down! One of the worst thing you can do for a client is lose them a lot of money from the offset.
And how has Trump affected things?
William: Well, for the first time since 1981, when I started in the business, I do think more about politics. It hasn’t influenced the way I invest for most of that time. Despite the rhetoric, there have been mostly very centrist governments on both sides of the Atlantic. We’ve now got a situation with the most volatile President, probably, since Nixon. And over here you’ve got the prospect of a very left-wing government. I’ve historically ignored politics – people ask me what I think and I probably give what they think is a very bland reply – but I do think about it more now. However, I try not to let it overly influence the companies I invest in. Look at France – it has a lot of good, world-leading companies. A couple of decades ago under Mitterrand you might have taken the view not to invest, and suddenly you had these world-leading companies in areas like luxury goods emerging. If you’d done that, you’d have made a terrible error.
Why were you attracted to JH&P?
William: Because I think it has a very good culture. To create a successful investment service, you need a firm with a good culture that is growing and has positive momentum and JH&P definitely has that. It focuses on its clients, first and foremost. Obviously lots of businesses say that’s what they do too, but here it’s really clear that the service is built around identifying client needs – whether they’re UK or international individuals, charities or advisers – and then working out how best to meet them, now and in the future. The assumption is that if we get that right growth and success will naturally follow – and it has.
Posted on Sept 19 2017
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