Esfandi, who joined CGWM in 2014 from his role as managing director of Ashcourt Rowan Asset Management, said smaller firms in particular are set to “fall by the wayside” as we approach 2019 with markets “mired in pessimism”.
The subsidiary of Canaccord Genuity Group, which has £26.9bn under management, offers a range of multi-asset and multi-manager funds in addition to an actively managed global equity product. It expanded its offering in July 2017 via the acquisition of investment and wealth management business Hargreave Hale.
Speaking to Investment Week, Esfandi identified a “bearish” outlook amongst investors, adding “there is little doubt, generally speaking, that we are entering a period where the returns are not at the levels we have enjoyed for the last two years and the climate will be more volatile”.
He added: “The easy times are over and this period will undoubtedly sort the strong from the weak.
“The speed of consolidation in our industry has been pretty rapid over the last few years. Some smaller firms have hung on, but in the ensuing climate, some will fall by the wayside.”
Esfandi said that as the wealth management industry is geared to markets – “if the markets are down, our portfolios will be too” – it is “vital” that the firm “can differentiate [itself] by outperforming in tough markets and continuing to really push for organic growth”.
As part of its efforts to offer clients greater diversification and portfolio protection in the market conditions the firm believes are to come, CGWM has been looking to alternative assets for client portfolios.
Esfandi said: “If markets are down, we increasingly look to other areas where we can get the best results for clients, depending on their risk profile – whether that is alternatives, convertible bonds, fixed income, or whatever it might be to get a good range of diversification.”
Within alternatives, to which the firm’s exposure is “marginally higher” than the bulk of its competitors, CGWM is looking beyond “obvious” assets like real estate to more “interesting strategies”, Esfandi explained.
He added: “We were early adopters of areas like asset backed infrastructure and specialist REITs, and more recently have embraced areas like convertible bonds.”
Esfandi described convertible bonds as a “misunderstood” and “deserving of a place in portfolios” at a time of rising interest rates where equities are climbing a taller wall of worry.
He added: “Properly managed, they can give a great risk/return ratio and improve that ratio in a diversified portfolio. They are certainly an important theme that will be playing out in our client portfolios in 2019.”
In terms of the “constitution of an average investment portfolio”, according to CGWM, alternatives would take up 21% for a cautious investor, 15% for a balanced investor and 10% for growth and an “adventurous investor” – the firm’s highest-weighted client risk category.
Esfandi added: “Going forward, we think that both individual stock selection and asset allocation is crucial.
“We have always used active managers where we can evidence they can add value and been comfortable with passives where appropriate.
“MiFID II is keeping us totally focused on underlying Ongoing Charges Figures, but it is important we do not let it distract us from managing our clients’ money well.”