Active investment commentary & analysis

Assessment of Value: Thoughts on Year 2

Colin McLean gives his thoughts on a second year of Assessment of Value Reporting. 


The second Assessment of Value Report on SVM’s ICVC range of five funds is available on SVM’s website. As in 2020, I am additionally reporting on video to make the process more accessible, and with the aim of reaching a wider audience. We are aware that private investors have many key documents to read and there is a risk that this adds to that diligence burden. It is important that the AoV process and report assists investors. I should add that the report itself and what I say here is not a recommendation on investment and must be taken in conjunction with other key documents and reports which more clearly set out risks, performance records and costs. Investors will have varying risk appetites and length of investment horizon.

Accessibility is a challenge with a broad audience that includes intermediaries, institutions and wealth managers. I would assure all our investors and stakeholders that the Report is not just a document of record, but also serves as a catalyst for thorough review and ongoing improvement. Last year, this led to an important re-negotiation with service providers to restructure costs to better serve investors. It also prompted a deeper understanding of the role that SVM funds play in overall investor portfolios and what attributes of SVM they particularly value.  It also means understanding the marketplace and keeping up with competition.

Done well, Assessment of Value is a powerful tool, helping both investors and also sharpening the manager’s focus and understanding of competitive edge. It should both provide transparency to clients and be a learning process for managers. For us, assessment of value is not just an annual document but a process of ongoing action.

This year, the Assessment of Value review has at its core our two independent non-executive directors, Jonathan Hewitt and Jon Beckett. I would like to thank them for the considerable experience they brought to bear on this analysis, based on their long industry experience in the retail and fund selection sectors respectively. This year additional effort has been made to improve readability, removing industry jargon and acronyms as far as possible.

SVM is the ACD - Authorised Corporate Director – of the ICVC, which we believe better serves investors in terms of detailed understanding of these funds and accountability within SVM’s regulated governance process.  SVM does not have a separate mutual fund subsidiary, and so discharges its corporate and regulatory responsibilities through a single group board. We believe this is structured to provide the challenge necessary and meet best governance standards.

I would like to thank our independent directors for their key role in this Report and also thank our investors and service providers, following an unusual period that stressed many operating systems. I am pleased that our service providers were able throughout to demonstrate resilience and maintain a commendable level of service without interruption.

Turning to the Report itself, it has again used colour coding to provide an accessible overview and maintain consistency with the style of the first year. It has again viewed value through the lens of an investor. The colour coding; green, amber and red, should not be taken as an indicator of either complacency or warning. Areas marked green will still be subject to ongoing pressure to deliver performance and maintain competitive costs. Where amber and red are used within overall evaluation, it is to flag there may be one or more areas pointing to a recommendation for management action or additional oversight.

I am pleased that the overall assessment is dominated by green, and that comparison with our peer groups of competitors is predominantly favourable. Investors will find more information within the Report’s detailed analysis on each fund, that may be helpful in their fund selection, or in combining SVM funds with other assets. These analyses speak to the characteristics of each fund, and more information has this year been provided on factors such as active share.

In addition to the prescribed characteristics of service and value, the Report again adds an additional dimension; fair share. Last year’s inclusion of fair share was well received, indicating how value might be seen by an investor in terms of how the overall returns are split between manager and client.

The Report again notes that the prescribed parameters failed to fully recognise some issues of public interest. In particular, the potential for active investors to contribute to responsible corporate behaviour, sustainability, price formation in stockmarkets and trading liquidity are not formally incorporated. This seems at odds with the moves towards stewardship by institutional investors. We believe that active investment managers can play a key role in signalling values and bringing non-financial factors into price formation.

SVM’s approach to responsible investing is engaged with the companies we invest in and integrated with the conventional financial analysis and other investment insights we make. We know that many investors value these characteristics and they can find more information on this within SVM’s Stewardship Report and other policies provided on the website. SVM is a signatory to the UN Principles for Responsible Investment.

Making some comparisons more difficult is the lack of transparency on true pricing, where rebates are involved. The Report necessarily addresses both quantitative and non-financial issues, recognising the challenges in comparability and the difficulty of expressing a holistic view in a simple conclusion.

SVM takes assessment of value very seriously and I hope that shows in the candour of the report. As managers we remain vigilant on issues of service and value as much as we focus on responsible investing and performance. We are happy to engage with investors and advisers on service and value issues. To address some of the industry context for Assessment of Value and the potential to improve this process in future, I will cover these in a separate video.