12 months after taking over as CEO of Seneca Investment Managers in Liverpool, David Thomas shares his investment and business strategy with InvestingZone.
Who are Seneca Investment Managers?
Seneca Investment Managers ("Seneca IM") specialise in multi-asset value investing. We find assets that we believe to be undervalued and buy them. Then we actively manage our funds to release value and deliver income and capital growth. Established in 2002, we have personal stakes in Seneca and we co-invest in the funds we manage. Combine this with the insights we offer as value investors, an approachable senior team and access to our partner network and you have the value of Seneca.
What attracted you to the business?
Principally the commercial opportunity of developing one of the few independent fund managers outside London, as well as the Seneca network that is backing this business, and the seriousness of the people involved, both on the executive team and on the shareholder register.
Peter Elston’s recruitment as a chief investment officer was a big plus. We’ve always had an excellent team of fund managers. With Peter’s input, we’ve refined the investment process to focus clearly on multi-asset value investing.
There’s something called a “Googlewhack,” where you key in a sequence of words surrounded by speech marks, and you only get one result. We’re quite close to that with “multi asset value investing”. You should try it. It tells me we’re doing something different, and in fund management you have to behave differently to get better results than the crowd.
Essentially it means buying things low and selling as assets become expensive. There are plenty of people who do value investing in equities. We are distinctive in applying a value approach not only to equities, but in every decision we make across a broad range of assets.
What are the different asset classes you primarily focus on?
We focus on four asset classes: UK equities, overseas equities, fixed interest and alternative assets, which is really a catch all for ‘everything else’.
In UK equities we tend to look for value in mid-cap businesses; in overseas equities we invest through third party funds where they share our appetite for value opportunities. We invest in fixed interest products such as bonds and gilts, but we’re very selective in this area, because it’s done so well for many, many years. In alternative investments we invest in specialist property, green infrastructure, aircraft leasing and some private equity, like AJ Bell. We look for income streams that are strong and reliable.
There has never been a busier, noisier time. How do you overcome the information overload and make sensible rational decisions?
We’re very focused on looking beyond the day to day chatter. Our investment decision making drives a real desire to get something at a low value, a bargain essentially. If you follow the fashions you will inevitably commit money at the wrong time. Many investors buy after things have gone up, even at a peak because they are drawn in by the chatter. If you do that, it’s almost impossible to make money and quite easy to lose it. For us it’s a combination of letting the numbers tell us about valuations and drilling down to find quality assets that we’d be happy to own.
There’s a lot of academic research, which underpins our approach from as far back as the 1930s. Much of our industry ignores this, but people have identified some pretty reliable guides to future performance; for example the level of income yield in equities, or real interest rates in bonds. We find patterns in valuation that we apply to our investment decision making.
The business relies on a good relationship with Independent Financial Advisors (IFAs) and it’s an industry that’s been through incredible change. How do you adapt your business to their challenges?
The IFA community has had a huge amount to take on board with the retail distribution review (RDR) and with pensions reform. To their immense credit they’re emerging with some very robust businesses committed to customer service and delivery.
One of the big conversations is that we’re in a world of low interest rates, so garnering income for clients is very challenging. I think interest rates are at their lowest since the foundation of The Bank of England in 1694, which is quite something. And that’s not going away. Future indicators in the swaps market are that interest rates will remain below 2.5% for the next 10 years.
So its a headache for IFAs looking to support their clients in retirement by nding income, and the issue has become more pressing with the changes to pensions regulation, which is giving more investors more choice. The days of simply buying a high yielding annuity are going away.
Our income fund is one solution. It’s produced around a 5% income since 2002 through good markets and tough markets. It’s a well established fund and now we’ve started paying the income out monthly instead of quarterly, it represents a potential retirement solution in itself. We think it solves a real problem for our IFA customers.
What are the key markets you see the business operating in and how will you go about securing new business relationships in this ever changing environment?
There are four key markets for us; IFAs, private client stockbrokers, institutional investors and personal investors. We have products and services that suit each of these markets.
We also manage an investment trust, the Seneca Income & Growth Trust plc, that holds appeal for private client brokers as it’s essentially a portfolio in a single share with around a 4% yield, so for smaller clients or those needing income, it’s a useful solution. The trust has also proven attractive to private individuals who self-direct their investments through online portals such as AJ Bell, Hargreaves Lansdowne and Liberty Sipp. It’s a sign of changing times that more people are looking after their own money, and they seem to value a trust that is well diversified, delivers a good income and has low volatility. So we’ve commissioned two companies to publish research on the Trust online, Martens and Edison, to make sure this market is kept abreast of developments.
We approach the institutional marketplace through the broad Seneca business network. This has proven successful over the years, and we have a number of pension funds, charities and family of offices invested with us. For institutions with significant assets we will run a separate account. Alternatively some institutional investors go directly into our funds. It’s always worth having a chat to see if we can help.
What’s your personal business philosophy?
It’s about alignment, accessibility and creating value for all of our stakeholders.
Our personal interests are aligned with those of investors in two important ways. Firstly the staff have equity in the business, from the Chairman down and between us we own a substantial minority of the business; secondly, the team has a significant personal investment in the funds – so what happens to investors’ money happens to our money as well. So in aggregate we have a strong incentive to do well for investors.
We are offering a service that our clients genuinely value because we make ourselves accessible to them. If an investor or a client wants to talk to me or any of the senior team, we welcome the opportunity. Similarly if an IFA wants to discuss the market with a fund manager, then we think that’s pretty important and want people to think they can do that easily. After all it’s a privilege to be asked to look after someone’s money. If we can look after peoples’ money well and provide them with a good service, we will create value for all of our stakeholders – clients, shareholders and staff alike.
Where do you fit in with the rest of the Seneca family?
Seneca Partners and the other Seneca business are probably interested in five or ten per cent of people’s wealth, and the clients tend to be high net worth individuals and corporates. With the Liverpool business as part of Seneca, we’re now interested in 100% of people’s investments. We are a mainstream fund manager, and the combination of all of the Seneca business is very powerful.
What challenges do the team face over the next 12 months?
We have a very strong senior team in place, and a distinctive and effective approach to managing money. Now we need to tell the story more widely to bring in new investors. At the same time, we are selectively looking for new funds to acquire, because we do have the capacity to manage much more than we do currently as long as they fit in with our multi-asset approach.