Henderson Rowe and Rayliant bring a mix of ETFs and direct equities to high net worth investors
Wealth Adviser
October 22, 2019
By Beverly Chandler
London headquartered wealth manager, Henderson Rowe has combined the art of stockpicking with blending in ETFs since 2004. The firm was purchased by USD26 billion Rayliant Global Advisors in 2018.
Art Baluszynski, head of research at Henderson Rowe, explains that the firm was one of the first in the UK to add ETFs into wealth portfolios. “Cost was the main driver,” he says. “ETFs offered easy access to gain exposure to different sectors without relying solely on a fund manager.”
Just under a third of Henderson Rowe’s AUM is allocated to ETFs while the remainder is still in direct equities. “We are a traditional stock picking company and don’t invest in mutual funds,” Baluszynski says.
Henderson Rowe originally had its own proprietary quantitative tools for researching and screening companies and now, post-Rayliant, also has access to Rayliant’s quant models.
Phil Wool, head of investment solutions at Hong Kong-headquartered Rayliant, explains that the firm has developed its scientific methodology through years of academic research on factor anomalies in China, and across the world.
Wool, based with the quantitative research team in Irvine, California, explains that Rayliant’s usual client base is institutional so the acquisition of a UK wealth manager allowed them to grow their audience base to high net worth investors.
“It was an exciting opportunity to bring the institutional research at Rayliant to the high net worth space which doesn’t normally have access to that type of research,” he says.
Baluszynski says that the use of ETFs within Henderson Rowe has grown as the industry has changed over the last 10 years. “Over the last 10 years since the RDR, investors have become more financially astute, had more access to information and seen more transparency towards investment vehicles and costs. It’s almost impossible to avoid being educated about ETFs these days.”
Rayliant designs a quant-based strategy for most of its institutional clients, trading stocks directly, and Wool says that the firm would use ETFs in certain situations, mostly for cost purposes and where it might make more sense for liquidity.
“Institutions are turning towards ETFs but most of our clients come to us for a specific exposure, mostly emerging markets or China. They want a solution that they think will outperform other sector-based ETFs.
“There is a big push to invest in passive funds, with lower costs and the overreliance on individual managers because, even outside of a Woodford type situation, there is not a great deal of evidence that active managers can consistently outperform the market.”
Henderson Rowe has also partnered with Premia Partners ETFs to provide emerging market and China focused ETFs to its clients. Baluszynski says: “Premia offers exposure to China, through two ETFs, Bedrock and New Economy, that are based on Rayliant’s quant engines. We do get specialised mandates from time to time, wanting exposure to a specific country and we rely on Rayliant to produce a bespoke approach or use Premia.”
The firm uses other ETFs as well. “We look at liquidity; we like physical; we don’t do derivatives and we look at the price,” Baluszynski says.
“When I joined the business in 2008 it was very much a core satellite approach through market cap weighted ETFs which allowed us to gain exposure to certain markets, but when we started getting more involved in the smart beta offering we decided to move away from pure market cap asset allocation to smart beta products.”
He now finds that there are very few multi-factor ETF offerings out there. “iShares offers three or four but apart from that it is difficult to get a pure multi factor asset allocation, so we try to rely on the Rayliant quant team to design us one through the use of ETFs.”
Wool says that the ETF offering has improved over time. “There are all sorts of cap weighted ETFs in every conceivable investment pot now and more and more ETFs with factor tilts, but the end investor needs to understand what they are buying.”
Wool believes that the real challenge lies where individual investors think they can build an ETF portfolio for themselves.
“We are building an asset allocation scheme populated with ETFs to help clients choose intelligent ETFs to fill that allocation.”
Wool believes that ETFs will continue to grow as investors become more cost conscious. “There is tons of competition in this space right now,” he says “and it’s driving the cost of the product down so they become more attractive. The industry is moving in the direction of low cost and intelligent products so there is no reason to wait for investors to get there – we will come up with solutions as soon as possible.”
Baluszynski still sees a lot of room for disruption in the UK’s wealth management industry. “Over half of the large wealth management players and big institutions still use the old school approach of a research committee of 10 whose decision is always to buy top performing funds without looking at the risk characteristics. That’s where Rayliant comes in – we can highlight the benefits of our research and the best way to construct a portfolio, where the exposure risk is and what sort of risks are being taken within a portfolio.”
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