Investment costs and opportunities with VWM's Dave Thomson

Nicholas Earl, 14/06/2021

Fund managers should consider reducing their costs to appeal to more selectors, suggests VWM Wealth Management's (VWM) chief investment officer Dave Thomson.

Speaking to Fundeye, Mr Thomson suggests that products being offered above a one percent rate are unlikely to feature in selector's lists. In his view, it was encouraging the grwoth of passive options which are being offered at a much more economical rate, and also exposed a lack of creative thinking with established strategies.

He said: "I think there's a lot of pressure for fund managers to reduce their costs, and they are reducing them, but probably not enough in my opinion. There is still a lot of older funds out there, and they're just too expensive. They're off my radar, even if they got good performance because they're just too expensive."

Mr Thomson was providing his perspective on the issue as part of a wider conversation about his role as chief investment officer. In this position, he oversees asset allocations and fund selections, while also driving VWM’s investment process.

He has enjoyed an extensive career in the industry, spanning 25 years, and has held his current role since 2006.

Rather than spending his extensive career focusing purely on data and spreadsheets, Mr Thomson prefers to network with fund managers and management groups, looking to distil their views, and understand the opportunities and anxieties within the asset management world from their perspective.

This is a key factor when it comes to his involvement with SharingAlpha, which picked him in its list of top ranked fund selectors last year. He utilises the investment platform to keep up to date with the asset management world and communicate with fund managers and selectors during a volatile economic period defined by extensive lockdowns, social distancing and very few in-person meetings.

An old school approach of embracing conversations, combined with the utilisation of the investment platform and also software such as Financial Analytics, has helped forge Mr Thomson’s investment philosophy at VWM.

Working alongside four other team members. the fund selector has a bias towards shorter-term performance, and looks to invest principally in onshore unit trusts and OEICs, alongside European based SICAVs. He prefers to avoid individual shares, ETFs or investment trusts, which he feels require a much larger team to maximise the potential returns.

The intention of his short-term approach is provide himself with the felxibility to change his strategy, a significant benefit during this volatile investment period. It also gives him room to be honest about mistakes made in the market, and to resolve them.

For instance, Mr Thomson explains that coming into the pandemic, the firm held too much in equities, a situation they have since corrected. Meanwhile, as the economy began its recovery path last year, healthcare and technology were the two primary sectors VWM targeted, with the outcome being a mixed bag.

With healthcare, Mr Thomson noted that governments across developed markets were forecast to spend even more to mitigate future pandemics, however the lockdowns have had a knock-on effect of cancelling multiple major medical procedures.

Mr Thomson says, somewhat ruefully: “Hip replacements have not been done and people have not been going to get their cancer treatments, so the health sector has not been a beneficiary of Covid. Even the pharmaceutical companies producing the vaccines aren’t really making any money out of it.”

VWM shifted way from healthcare when the vaccines were announced. As for its more successful fixation on technology, its backing of disruptors in the investment space reflected its belief that there were significant changes to the economy that could be set to stay, even while Mr Thomson maintained a more equivocal outlook for domestic economic growth.

He explains: “We don’t think the economy is off to the races, if the economy gets back to pre-pandemic levels that would be a pretty good result. With that thought in mind, we don’t see inflation picking up longer-term, we see it being transitory. We are hedging our bets a little, as the market is worried about inflation picking up.”

There has also been a much more of a cyclical approach to investments over the past year and a half with the eocnomy emerging from lockdowns before falling into them once more as cases grow. Formerly the focus at VWM was towards high-quality growth, but now there was less emphasis on quality.

Mr Thomson says: “We still have a bias towards growth but the quality side of it has gone. We have replaced that with more cyclical exposure, principally smaller companies and smaller cyclical markets like the UK, Europe and the Far East as well. Consequently, we have been reducing our US exposure which had formerly been quite high.”

The fund selector remains under-weight in the UK overall though, citing the instability around Brexit as a key factor for the hesitancy.

He explains: “I think any economic effects of Brexit are being swamped by the COVID effects. While we probably would never have known what, for better or worse, the impact of Brexit will be, now we'll definitely not know the impact of Brexit because COVID is swamping that. We would prefer a more broadly based European strategy.”

Nevertheless, Mr Thomson points to JP Morgan’s UK Small Companies fund and the Sanford DeLand UK Buffettology General Fund as products investors should consider.

As for the future, Mr Thomson is open to multiple new trends. This includes increasing its attention on Chinese markets,  ESG factors which have exploded in popularity since the pandemic and more cyclical opportunities. He also saw the growing significance of politics to disrupt and challenge key investment trends. The focus however, had to be on the short-term, with the fund selector looking to stay on top of an ever-changing volatile investment landscape, with developed markets finally entering the post-pandemic recovery stage.

Mr Thomson concludes: “We have our view of the economy and markets, largely for the next six months. It is difficult to look beyond that. We are then fitting the portfolio to that view and look to remain quite nimble, in case our views change.”

Mr Thomson was interviewed as part of Fundeye’s series on SharingAlpha’s leading fund selectors and managers. He was nominated by the investment platform as a top fund selector in 2020.

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