Monthly Archives: April 2018

Impact of MiFID II after 11 weeks

Many market participants expected MiFID II to start slowly as the regulations rolled out over the course of this year.  Many companies also have been talking about ‘business-as-usual’ with many in ‘wait-and-see’ mode.  Now that a quarter has passed, what is the reality?  Particularly from the buy-side’s perspective.

To help answer this question, we interviewed a sample of 50 European-based portfolio managers during the 11th week after MiFID II (March 19-23, 2018).  Their answers painted a picture suggesting more revolution than evolution.  The buy-side is clearly experiencing significant change already and it’s clearly not ‘business-as-usual’.

The results show:
  • Access has been negatively affected
  • Investors have already reduced the number of brokers they are dealing with for both equity research and Corporate Access
  • Cutbacks in research providers is already leading to restricted access to conferences and non-deal roadshows
  • Price discovery for research is evolving quickly
  • The risks of companies and investors ‘missing’ each other during roadshows has increased
  • Interesting (and worrying) divergence appearing between the communication lines issuers-to-shareholders and issuers-to-non shareholders
  • Buy-side is contacting more companies directly and would like company IR teams to also do more themselves
  • Investors are strongly in favor of an independent model for providing Corporate Access
  • Bureaucracy has increased with all interactions being logged
  • Surprisingly, some buy-siders are reporting poor responsiveness from some IR teams
The changes started pretty immediately in January with many buy-siders issuing “cease and desist” style emails to the sell-side asking them to stop sending research unless they have a contract in place.  For example, typical emails were as follows:


Our research sample was as follows:


Has the number of meetings changed?


What do investors want?
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James Hambro & Partners LLP – London

The Hambro name has been closely associated with the investment world for more than 200 years. Founded in 2010, James Hambro & Partners LLP (JH&P) is an Independent Private Asset Management Partnership with assets under management, advice and administration of £2.8 billion (US$3.8 billion). The partnership offers institutional-quality investment management to HNW families, trusts, individuals, charities and associated portfolios.

William Francklin joined JH&P in July 2017 and has over 30 years’ experience managing portfolios. He began his career in investment management in 1981, working at Morgan Grenfell Asset Management (in both London and New York) and latterly at Waverton Investment Management. William has also managed assets for American clients for a number of years. As JH&P has SEC authorisation (as of July 2017) he will continue to manage global portfolios for US clients based in the US and overseas.

Is there a connection between JO Hambro Capital Management and James Hambro & Partners?

The two businesses are completely separate economic entities, managing different pools of money for different clients. So no commercial connection. However, the founder of JH&P is Jamie Hambro who was previously the Chairman of JO Hambro Capital Management (JHCM) which was acquired by Australia’s BT Investment Management in 2011. Jamie remains on JOHCM’s board and some of JOHCM’s partners are investors in JH&P.

Current AUM are £2.8 billion ($3.8 billion) – do you have a final figure in mind?

Short term we would like to get AUM to £3 billion ($4 billion), medium term – £5 billion ($6.8 billion).

Of AUM what’s equity portion and geographic split?

70% equities. At this stage as we are predominantly a UK private client business, the split is 30% UK equities and 40% overseas equities. The remaining 30% of AUM is in fixed income, alternatives.

I understand you have SEC approval – discuss.

Historically, I started looking at offshore trusts for US clients who could not have a US money manager. These trusts are completely transparent from an IRS point of view. We also ran specialist portfolios for US family offices who invest outside of the US – for example – a specialist European portfolio. I also work for US clients based in London.

How is the investment team structured?

We have areas of responsibility. We have people looking at the UK, Europe (Mark Leach), Asia and Japan (Camilla Cecil, who until recently worked at Ruffer in Hong Kong) and the US (myself and Charlie Underwood). However, we very much have a “buy-in” approach so each idea goes to the stock selection meeting and has to get approval from that meeting to go on the recommended list.

So you work from a recommended list?

We very much have a recommended list and are very collegiate in what we do. For example, often at least eight of us will meet a company. We produce very detailed work on companies.

How would you describe James Hambro’s investment philosophy?

We look for high quality companies where we know the management well. Quality is very important. We like leading companies in their respective fields.

Which screens do you use?

We are not screen driven but do look at screening measures to check our research. But we are not HOLT driven for example. We just like to check that our investment thesis stands up.

Any sectors you won’t invest in? (e.g. tobacco, defense etc)

No sectors are excluded but some clients prefer not to invest in certain sectors.

Market cap cut off?

We typically invest in large cap and mid cap stocks. Occasionally we will invest in a small company if we have a very detailed knowledge of the company and know management really well.

Average turnover?

Our figure for turnover historically has been close to 25%. We are, however, very much looking to invest in companies for the long term.

Benchmarks?

For the UK clients we use Asset Risk Management (ARC) and for international clients we use the MSCI World Index.

Performance vs. benchmarks? Our global equity portfolios usually compares our performance with the MSCI World Index. In practice, our clients look at our returns both on a relative and absolute basis.

Active share ratio?

This is not a figure we monitor.

Any themes you favor?

Leading growth companies – for example Visa. Historically attractive total return stocks with income, such as Diageo, which we have owned for a long time. In Asia, a growth story like AIA, a life insurance company that came out of AIG and is a leading life company in Asia.

I believe you are bottom up? Discuss.

We are bottom up stock pickers but have a very detailed asset allocation process. You cannot totally divorce stock selection and asset allocation. However, top down macro investors are currently very bullish on emerging markets but we do not have much direct emerging markets’ exposure. We are always wary of places where we can have big currency risk. Emerging markets may do well this year, are very much in vogue and are deemed to be cheap.

Can you discuss some of your larger holdings?

Visa – we have owned it for a long time here at JH&P (and I owned the stock for a number of years prior to joining). It is the leading company in debit and credit worldwide. There are very high barriers to entry in the sector. Its secular growth is driven by the shift to electronic payment and away from cash. It is an incredibly high margin business. It has the highest margin of any company in the S&P 500. It has a consistently high growth rate. It has 59% market share of card volume in the US vs. Mastercard which has 26% and American Express which has 14%.

Diageo – originally was the merger of Guinness and a distillers business (Grand Metropolitan) in a hostile take-over (1997). That take-over turned out to be very good for shareholders. The reason it turned out to be so good for shareholders is that it happened before people recognized the power of global brands. In Diageo’s case they have some very powerful brands including Johnnie Walker, Gordon’s gin and Smirnoff, amongst many others. It is a long term holding. It generates free cash flow and has a rising dividend yield.

AIA – is a more recent holding. It gives our clients exposure to the fast growing life insurance business in Asia including China.

Samsonite – world leader in travel luggage with over four times the market share of the next largest player. Beneficiary of growth in the global tourism industry and seeing fast growth from Asia.

Any recent sales and why?

WPP is an example of a share we sold in July 2017 as we were increasingly concerned about the possibility of a profits warning. We continue to believe that advertising agencies will be under pressure from the shift to digital which favours Facebook and Google in particular.

Buy backs or dividends?

Probably dividends but it is hard to be too dogmatic. US companies have historically preferred buy backs. UK companies tend to prefer dividends.

Does a stock have to have a yield?

A stock does not have to have a yield but for some clients yield is very attractive. 10 year government bond yields are very low and yields on two year government bonds are negative.

Do you have a strict price target when you buy a stock?

We do not have a strict price target but if shares get very expensive yet the fundamentals remain good – we will top slice the position from time to time. If fundamentals change, we will sell.

Average position?

Typically 3% for a blue chip holding and 2% for a mid cap.

Is Corporate Governance important?

We do follow corporate governance and might be involved if we deemed it necessary.

Do you have to meet management before you buy a stock?

We rarely invest in a company where we have not met the management. Ideally we like to meet management one-on-one but group meetings are fine too. We also attend conferences. We will definitely attend the next Nasdaq conference in London. We aim to meet the management of companies we invest in including the CEO or CFO at least once a year.

How will MiFID II affect you?

MiFID II rules means we have set aside a budget so we can afford to pay for research every year whether markets go up, down or sideways. We also try to speak with companies directly to arrange meetings and we use independent providers such as Phoenix-IR.

Best companies at IR?

Lockheed Martin is a company that springs to mind. The company visits investors in London on a regular basis which is very reassuring for long term investors. The IROs are also incredibly well informed.

Why should corporates target James Hambro?

Our clients are people who genuinely want to invest in long term successful businesses. Our clients do not like high turnover – so we invest for the long term.

A version of this article appeared in IR Magazine

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