A rich man is nothing but a poor man with money

– W C Fields

Paul established the client portfolios in 2009, and George came on board in 2011. The team at LWM invest their pension money in the portfolios to ensure alignment with clients.

At the heart of the portfolios is the desire to deliver positive returns of between 5% and 6.5% per annum (after fees and charges) over the medium to long term, by investing with the very best managers who select exceptional businesses (often called “quality”).

Being different

We believe we are different because:

  1. We share our portfolios publicly on our website
  2. We share notes from our fund manager meetings
  3. We do not follow the crowd with our investment decisions
  4. We have a strong performance track record since 2009 and combined experience of over 25 years of investing

Sometimes not following the crowd can seem strange. Some examples include:

  1. In 2009 we decided against using bonds (debt) as an alternative to equity and have consistently used a mix of assets to great effect
  2. In 2014 we launched our Ethical Portfolio (now our Positive Impact Range)
  3. In 2020 we increased our allocation to Asia, China, and Emerging Markets because we believe in the long-term growth opportunities
  4. In 2022 we started to move away from pure technology strategies to strategies looking to deliver solutions across areas like climate change, healthcare and water waste

Transparency

We believe transparency is key.

Do all the fund managers adopt a quality overlay?

We believe that quality businesses are more sustainable over the long-term. These businesses tend to have similar characteristics, whether it be exceptional management, less debt, barriers to entry, strong cash flow and / or exceptional growth.

Within this we prefer managers who adopt a valuation discipline i.e. not paying any price on the basis that valuation doesn’t matter.

Those managers who adopt a “valuation doesn’t matter” approach can be seen as pure growth managers, and we do have some exposure to this but it will depend on the risk profile of the portfolio.

On the flipside some managers adopt a “value” approach, i.e. buy businesses that are cheap on the basis that something will change. Although we have a valuation discipline we don’t tend to invest in “value” unless it has a strong quality overlay.

To help navigate this we rate each fund between 1 and 5. In doing this we consider factors around valuation, profitability, and levels of debt of the underlying companies the managers invest in.

The scores are:

  1. Alternatives – this includes bonds (debt), structured products, multi-asset strategies and structured products
  2. Quality growth – these tend to be equity managers who invest in quality companies. The characteristics are those that are profitable and have lower levels of debt. The valuation of the fund tends to be in line with the market
  3. High growth – these tend to be equity managers who invest in high growth companies. The characteristics are those that aren’t yet profitable but have the potential to achieve this in the future. They may have higher levels of debt, and these are funds which tend to be more expensive than the market
  4. Value – this tends to be classed as modern value thinking. This is similar to “2” above where managers are seeking quality companies, and these tend to be profitable and have lower levels of debt, but for some reason are currently out of favour with the market
  5. Deep value – these tend to be companies which have high levels of debt, potentially are unprofitable and out of favour in the market. The manager is therefore looking at companies which they see as having a catalyst to change this sentiment

We tend to invest across the ranges 1 to 3 but may consider 4.

To blend the risk and return, the Cautious Portfolio will have more exposure around alternatives and quality growth to provide longer term downside protection, but still has some exposure to high growth. The Adventurous Portfolio will have less exposure to alternatives and therefore we aim to have a careful balance between quality growth and high growth, recognising that high growth has the potential to deliver the longer term returns if the manager selects the right companies, but will be more volatile.

The table below outlines this in more detail.

Is it worth paying for active management

We believe that if you find the very best fund managers then it is worth paying for them but we are realistic and if we can’t find one then we are happy to invest in a strategy that just follows the market.  

We know that even the very best managers can go through periods of underperformance, and so meeting managers and understanding the process helps us to navigate difficult times. We want to be with a fund manager for five plus years. We don’t believe trying to guess what is in favour adds any value. But if something fundamentally changes or something exceptional comes up then we will change.

You won’t see us wedded to the big names. We are just as happy speaking to boutique managers and often we find these are more aligned to us and our clients.

Is it worth meeting managers when we are unlikely to invest with them?  

Absolutely! Meeting people is one of the richest sources of information and often enables us to uncover hidden gems.

We don’t know where a meeting will lead and whether it will challenge our thinking. We have managers who we have been talking to for five years before we invest. It may be frustrating for them but we are happy to be patient investors, ride the different cycles and really get to know and understand a manager before investing.

Does the “macro” or economic picture make any difference?

Yes, and no!

We spend a great deal of time studying the markets and listening to people’s views, but our style of investing means that we very rarely act on this.

We adopt a discipline approach. Markets are cyclical and hysterical and we adopt a process which we know works. It can be uncomfortable at times but we know time and again patience and discipline have been the ingredients to success.

But similar to meeting managers, the information we get often identifies long term trends and this is reflected in some of the decisions we make. Sometimes, unintentionally, we move ahead of the market and that places us in an excellent position when the market view comes to our way of thinking! Two great examples are our limited exposure to bonds since 2009 and a more diversified range of assets. Only in the last two years are investment houses accepting the model of bonds and equities is broken. Another example is with the Positive Impact Portfolio, where the market is only now seeing the benefits but struggling on how to approach this.

So learning, listening and studying shouldn’t change our short term views, but it can uncover potential future trends.

Do we have a mission?

Our mission is to enhance our clients financial wellbeing using our research and experience. LWM is a partnership with our clients and our responsibility is to understand their needs and wishes and without exception to do what is most beneficial to achieve them.