Investing

Case Study: Portfolio Manager

As the range of clients and investors incorporating XTBs into their portfolios continues to grow, we talk to some key clients about XTBs and why they find them beneficial in their portfolios.

Leith Thomas, AFF Investment Management

“XTBs are leading the way and bridging the gap between fixed interest issuers and direct investors.”

IN SUMMARY
Company AFF Investment Management
Location Sydney & Wollongong, NSW
Title CEO & Portfolio Manager
Brief overview We offer tailored individually managed portfolio services for SMSF investors & family trusts. We also provide managed account services for financial advisers and accountants.

What have you traditionally used for fixed income and what attracted you to XTBs?

“Listed corporate bonds have featured heavily in our client’s portfolios over the past 10 years. While we have always managed to identify opportunities in this asset class, since the GFC, APRA has pushed the main issuers into Tier 1 raisings. This has effectively reduced our investable universe.

XTBs have provided us with a new universe of opportunities with the option to invest higher up the capital structure. They provided access across the yield curve and in quality issuers very efficiently. Combining the innovation of XTBs with our platform’s functionality, we can move all clients in or out of a bond within minutes”.

What stood out to you about XTBs vs other fixed income solutions?

“Beyond the efficiency benefit, having the ability to move an entire client base in and out of bond parcels less than the required $500,000 for wholesale, provides us with a level of flexibility beyond that which we could get through a bond dealing desk.

We found the XTB structure more appealing than the ETF options available.

While fixed interest ETFs may play a role in certain portfolios, given their index focused investment strategy, which can require constant re-balancing (regardless of the price/value equation) and sale prior to maturity, interest rate and credit risk management within these structures is very difficult to achieve”.

“Buying a bond with the option of retaining it until maturity provides greater ability to manage interest rate and credit risk.

The structure also gives greater control over tax outcomes than the Fixed Interest ETF alternatives”.

 

What benefits do you feel XTBs brought to your portfolio?

“XTBs have allowed our clients to retain a truly diversified portfolio, without the need to materially shift portfolio risk by chasing yield through the myriad of Tier 1 securities that now litter the listed market.  Efficient access to debt securities for our clients was the key benefit.

With the growth of advisers and stockbrokers towards individual HIN Managed Accounts, innovative listed solutions in the Fixed Interest space will be critical in the future. XTBs are leading the way and bridging the gap between fixed interest issuers and direct investors.”

More about your portfolio approach

“Managing client assets through the turbulence of the GFC reinforced our principle of focusing on risk and return equally. I know it is easy to say, but risk management really does sit at the core of our approach. This is well suited to our client base who are typically over the age of 55, so not in a position to recover from large permanent losses.

We are bottom-up value investors. We have developed proprietary processes for each of the asset classes we cover. Our clients are invested across shares (domestic and international), A-REITs, Fixed Interest, Term Deposits and Cash. Generally speaking, we are looking for mis-priced assets that also meet various quality and financial strength metrics”.

Pluto by PortfoliosDirect

“We use Pluto which is operated by PortfoliosDirect Pty Ltd. Pluto has been a game-changer for our organisation, allowing us to manage our model portfolios and re-balance across our entire client base at the click of a button. From the advice side it runs real-time performance and tax reports. From the administration side, critical tasks are either handled automatically or functionality allows for bulk management. I should also disclose that I am involved in the company that developed Pluto. A group of like-minded professionals, who each have extensive experience in individual HIN Managed Accounts, Financial Advice and Accounting, developed Pluto from the ground up. We have found our practical experience has been a great fusion with smart programmers.”

Finally, any market views you’d like to share?

“Howard Marks regularly echoes a quote that “there are two types of forecasters; those who know they don’t know and those who don’t know they don’t know”. AFF Investment Management sits firmly in the first camp.

We take the view that probabilities are turned more in our favour if, instead of banking our client’s capital on predicting the next interest rate or currency move, we are prepared for both good and bad weather at all times.

In saying that, we do tilt our level of risk according to where we are in the economic cycle (based on actual rather than predicted economic data points) and relative to asset prices. On this basis, we are leaning far more towards the conservative end of the spectrum than the aggressive end. In the fixed interest space, we are also more weighted to the short end of the curve than the long end”.

More about Leith

“While at university in the early 2000’s I applied for a role with a boutique dealer group. In my interview the CEO asked me where I wanted to be in the future. I pointed to his chair, grinned and said “there”. Luckily for me he laughed and gave me a start as an investment analyst covering A-REITs and financial stocks. A little over three years later I was a shareholder in that company and sitting on the board.

Over time, I identified a gap in the marketplace for investors to access a well-resourced active investment service that did not pool client assets. A service that allowed investors to hold legal ownership (not just beneficial). One that gave investors direct access to their personal investment management team and had clear investment philosophies. AFF Investment Management was founded in 2009 on these core client-focused principles.

Today we operate Individually Managed Portfolios for a group of HNW individuals and families. We have an MDA authorisation and we plan to introduce an automated ROA service in the near future. Each client has their own HIN and bank account.

Transparency is critical for our firm so we disclose absolutely everything to clients, right down to every cent coming in and out of their bank account. As a result, this has gone a long way to building trust and long-lasting relationships”.

For more information:

T: 02 4201 7030

E: admin@affim.com.au

W: www.affim.com.au

Disclaimer:
The views expressed in this case study are not necessarily the views of XTB.  The information in this article is general in nature. It should not be the sole source of information. It does not take into account the investment objectives or circumstances of any particular investor. You should consider, with or without advice from a professional adviser, whether an investment is appropriate to your circumstances. Australian Corporate Bond Company Limited is the Securities Manager of XTBs and will earn fees in connection with an investment in XTBs.

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