Fraser Kerr: Hello and welcome back to Wealth Wise the financial planning podcast from abrdn. As you know, my name is Fraser Kerr Regional Director here at abrdn Financial Planning. And in this series, we aim to bring you the conversations in the collective insights that help you achieve more every day. Today, we are focusing on the MyFolio fund range. And as we're recording this episode from a rather bleak and miserable 1 George Street head office, it is with real excitement that I'm joined by two incredible guests who have made the trip from London to be here today, Justin Jones, MyFolio Senior Investment Manager.

Justin Jones: Good morning.

Fraser Kerr: And Daniel Reynolds Investment Manager alongside Justin in the MyFolio team. 

Daniel Reynolds: Hello.

Fraser Kerr: For a brief background on those who are unfamiliar that MyFolio investment range is a long-standing cornerstone here at abrdn. It was a pioneering fund range, adhering to quite clear management guidelines and to those attitudes to risk principles, from the most cautious all the way to the most adventurous of investors. It forms a real foundation of abrdn financial planning centralised investments that we offer our clients, so it's great to be in this position with them joining us here on Wealth Wise today. Before we come onto MyFolio, the outlook, it'd be great to hear a bit more around the why of you as individuals, how do you find yourselves sitting in the chair today, and why is it that you do what you do, Justin? 

Justin Jones: Okay. Yeah, so I guess stepping back, I've actually been involved in financial services for 30 years at the end of this year which makes me feel very old indeed. But look, I think going back certainly when I was at school, I didn't have any idea what a fund manager even was. But I've always been interested in buying a company shares. And maybe my parents got me into that when we were the privatisations of the facture years in the early 80s. So, I took a keen interest in that from the very start, at college I studied economics and I really, really embraced that I still read the economist every weekend, I'm quite nerdy on some of that. So that was kind of maybe two natural kind of feathers in that cap that would maybe have led me here. But my early career in 1994, when I started was actually more in the corporate banking side. And my role was quite tech focused. So, running databases, talking to corporates around debts and lending, and I really kind of fell into asset management in 2001. When I moved across to Credit Suisse.

Fraser Kerr: Working at that time must have been particularly interesting as well, with the financial crisis. I mean, coming through that must have been, yeah, quite an experience.

Justin Jones: Yeah, that was certainly an interesting few couple of years. And then we straight after that we had the Eurozone debt crisis. And yeah, so you have to learn how to cope with those things. 

Fraser Kerr: Makes you a bit more resilient.

Justin Jones: Absolutely. You live in interesting times, someone once said that’s smarter than me. So, you know, from there, from 2007, we've been involved in in running funds of different varieties and colours. abrdn acquired us and Credit Suisse in 2009. And here I am. 

Fraser Kerr: Yeah, and Dan, your background is slightly different to Justin, I suppose it's less traditional in terms of you won't always have that sort of one eye on the prize with regards to getting into fund management, but more akin to the own guys, and you've actually worked with a few of our colleagues in the abrdn financial planning side, how is it you found yourself in this position as well?


Dan Reynolds: Well, I've always been more of a math geek than so many other subjects like history or English, as my teachers will, would confirm, I actually went to do electronic engineering at university, despite my teachers’ advice. And it was true that I really liked math’s, but perhaps less so the physics side of that. So, when I left university, I really didn't want to do that. But I really liked the math’s, I really liked the learning. And I really wanted to do something where I could go and chat to people and meet people. And so, when a kind gentleman in 1997 gave me the opportunity start as a financial adviser, felt like it ticks the boxes, was basically going out and seeing people chatting about it, and needed to learn really quickly about what I was doing. 

Fraser Kerr: Yeah, the technical side of it was their underpinning. 

Dan Reynolds: Exactly. So took all the exams under the sun, managed to get an opportunity at Standard Life in 2000, which is when I joined here, and that really enjoyed continuing to learn over that period, I suppose. And then through getting immersed in not just the tax side in the advisory side, but also the investment side gradually grew more and more interested in that. The math’s geekiness came out actually did a math’s degree during that time, investment management certificate to get a bit more knowledge about the investments. And then in 2010 When MyFolio launched I worked very closely with the MyFolio team back then, yeah, and helped my clients at the time, understand the benefits of MyFolio, move into that, we use the Wrap platform, etc. And then I pestered the head of the team for a job. And he said, No, you're not ready. And so, I carried on pestering him and carried on working. And then in 2013, I managed to join the team, as a junior analyst. 

Fraser Kerr: It's quite a big decision going from that world that you are known in, very senior and go into that role of a junior analyst. I mean very, you know, bold and brave decision for you to make at that time.

Dan Reynolds: Those are the polite words…

Fraser Kerr: Yeah, your wife must have been happy. 

Dan Reynolds: I did feel like I knew my stuff. And that was really nice. And I'm really glad that I still have that foundation, and it's really good. But I just, I suppose I wanted to have… I’m a bit of a detail geek. And I really wanted to drill down into how it all works like the underlying funds. So, yeah crossed over and covered a number of asset classes since and here we are today, I suppose.
Fraser Kerr: I think we probably say there's many things to focus on. But what do you think's the most important thing for yourselves to kind of focus on your, your key tenants that you always would come back to?

Dan Reynolds: It's got to be the strategic asset allocation. Justin and I run the ranges that predominantly used passive underlying funds, but we certainly don't consider our funds to be passive, but that the strategic asset allocation is applied with the same process across all of the MyFolio range. And that's really important.

Fraser Kerr: What is that, Dan? What is the strategic asset allocation when you're just if you were to summarise it?

Dan Reynolds: So, it is to build the blend of the available things we can invest in, in the best way, and the most suitable way for the client, depending on their view of risk. So, if you think of what's available in the market…

Fraser Kerr: It's what you're taking off the shelf, to build the basket to move it forward. 

Dan Reynolds: So, shares by US, Europe, UK, etc. emerging markets, bonds, which are loans to companies, corporate bonds, government bonds, property, cash, and so you never know which of those is going to do best, you certainly don't know which is going to do best over the next year. We use long term expected returns based on what's happened in the past, how these investments will move against each other, to build a portfolio which blends all of those to let deliver the pattern of returns either how bumpy the road will be if you'd like, to make sure those clients are always getting what they expect. It's blending those, those different asset classes, those different types of investments together to give a solid package.

Fraser Kerr: Even over my time, I've seen this real shift as well. And I think a great example of that would be sustainable investments. And there's almost like this change in the zeitgeist where it became very prominent, that ethical and that governance piece was always core to MyFolio.

Dan Reynolds: Yeah, I mean, you mentioned where we've come from since 2010. And five years ago, we launched MyFolio Index, which brought passive capability that tracking of index funds internally, thanks to the merger of Standard Life and Aberdeen (Asset Management) so we have real strength to be able to run much of that in house that keeps costs low. So that's, that's really beneficial. And then as you say, in 2020, we launched Active MyFolio Sustainable, because clients demand that now I think it's really important.

Fraser Kerr: When you're actually managing a sustainable fund range, how is it that you actually go about defining and thinking about sustainability? Because it means different things to different people?

Justin Jones: It certainly does, and that's a really good question. So, one of the things to point out is we actually had before the MyFolio Sustainable fund ranges, a Legacy product on the Aberdeen (Asset Management) stable, which we've been running since 2005, it’s actually the longest running ethical Fund of Funds anywhere in Europe. So, when we were thinking around the Sustainable MyFolio franchises back in 2020, and 2022, we already had a good head start in terms of the research, understanding of the type of managers that are out there and those different kind of shades of green, if you like. And sustainability means different things to different people, there is no one answer. And it's it becomes quite a values-based decision for some investors. So that the way we think about and the way we have created the two MyFolio ranges, as we think about sustainability, principally through the lens of we want to do more good and less harm. So, we're not badging the sustainable ranges as dark green, ethical or impact funds, we're very much appealing to the kind of center ground. So that we do that in in quite a quantum methodical way, as you probably expect, from the way we've run the portfolios for 14 years now. But we keep it actually quite simple to explain. So, we call it ‘ABCD’. So ‘A’ is avoiding harm. And we will exclude companies that fail to meet certain criteria. So, for us, that is tobacco companies were not willing to support tobacco manufacturing, we block companies that are involved in the extraction of thermal coal, we also exclude any companies that are controversial weapon manufacturers or involved in the supply chain of those weapons. And then finally, any company that fails what is called the UN Global Compact, so those for the United Nations compact, it's talking principally around kind of labour practices around management kind of team. So, if there's a company that fails on that, we will exclude those companies. So, in total for Sustainable Index, that it's actually quite a big piece of work to actually monitor the funds every month to make sure that our underlying managers are sticking to those rules that we've imposed upon them. So first off, we avoid some of the nasties. Second oft on ‘B’ we back better companies. So, we're actively trying particularly in Sustainable Index, but also Sustainable Active where we actually go out and find kind of genuine impact quite managers who are out there trying to find the next kind of graphene manufacturer or the next green tech kind of company. So that's in Sustainable Active, we actively tilt the portfolios towards those companies that are able to kind of do more good in the world. So, we're trying to avoid the nasties, tilt the portfolio towards those companies that are doing good in the world. ‘C’ is contribute to solutions. So, we're actively trying to find these kinds of impact strategies. So, in our Sustainable Active range, we've got to manage our sand smart materials. Those guys are out there trying to back businesses that are developing materials of the future and technologies of the future. So, we've got an active sleeve that actually goes out to try and find those really interesting and novel type managers. And then really importantly, for us on ‘D’ which is around governance. So, in our ‘ABCD’ the ‘D’ piece is around ensuring that with the managers we have, we're tracking the way that they engage with their underlying company managers, we track the voting records of our fund managers to make sure that they are holding management teams to account and where there are examples of bad corporate governance or indeed, gender diversity, all of these things we are we are taking a keen interest in making sure that we are working with our underline managers, that they are using their kind of responsible voice as custodians of that capital. So, in a nutshell, the sustainable ranges have all grown up around that philosophy. As then mentioned, literally, this week, we just passed an important milestone on the Sustainable Index range crossing 100 million, which we hope makes it a bit more appealing to other fund buyers, like to see scale, our Sustainable Active range is already over 100 million, and both of them are growing quite strongly. So, it's an area that we are certainly looking to do more work on in the future. 

Fraser Kerr: Yeah, exciting as well. And it must be quite interesting, because going into that level of depth of detail, you know, with the ‘ABCD’ approach, and that additional diligence, that something that's relatively you know, it's newer for you as well. And it's something that you've seen with the industry changing as well. 

Justin Jones: It's definitely something where we realised quite early even though notwithstanding the fact we had a strategy that had been doing this for many years, the more Dan and I dug into it, the more we realised we had to learn. So, we hired an analyst, Sophie Meatyard in 2020. And she's a dedicated ESG person. And she certainly keeps us both on the straight and narrow. She's very, very passionate about the subject. But we actually have now in the broader Multi Asset team, a Climate Solutions Group. And these guys also have been incredibly helpful when we think about, so we've got a regulatory change coming in the UK this year. SDR (Sustainable Disclosure Requirements) 

Fraser Kerr: SDR is much easier to just nip out than the full yeah.

Justin Jones: So those rules and regulations are coming down the track at us all, pretty soon, I think from your side of the fence Fraser, it’s going to mean that you're going to have to think about how you build sustainable kind of questions into your advice process and into the KYC for clients, from our side of the fence, it means that in order for our portfolios to keep their name sustainable, we will have to meet certain minimum standards, we're very confident that our investment process is pretty thorough, and probably meets 95% of them already. But certainly the focus for the MyFolio team this year is going to be on ensuring we can fully comply with the new rules as they come in, which I think is going to be kind of end of this year, December, although they still some uncertainty with the FCA about exactly what it what it's going to look like and when it's going to go live.

Fraser Kerr: What does a typical day look like? You know, how would you know… maybe not any two days are the same, but is there general themes that you see, or you know, how does a day in the life keynote kind of run for you both?

Justin Jones: I think that's one of the best things about the role actually, that is so varied. And one of the things you have to embrace and appreciate very early in terms of being a risk taker, or a named Fund Manager is that you will never learn enough about the markets. Nobody, nobody has ever said, I've done that I've solved it. I know how markets work and what they're going to do. So, you have to accept and be humble to the fact that you are always going to be learning, you're never going to be at a point where you say I finished that. And I'm the master at it. So, what that means in terms of a day to day is that very rarely are two days exactly the same. Dan and I have got combinations of different projects going on at the moment we've got a kind of rigid is the wrong word, a structured research and portfolio management kind of agenda that rolls through the week. So, every Tuesday we meet up with our analyst team, discuss the managers they've met the week before what meetings were coming up that week, what the results of those meetings were and whether it changes our view on any underlying fund. On a Wednesday is our portfolio management meeting, where we gather all of the fund managers and all the analysts together. So that's kind of our main weekly investment forum where anything is on the table and on the agenda. And then every Friday, we spend a good two or three hours, just the PMs running through and casting our eye down the portfolios, keeping, I'm sure that things are moving in the right direction. But outside of that the research process and the research agenda is constantly evolving. We meet, I think we have 180 funds across active and passive on our buy list. And we're all else being equal trying to meet with the managers of those strategies, at least twice per year. So, you can see that across the eight analysts than the five PMs, we’re pretty active in terms of being out there. 

Dan Reynolds: I was going to say, that's what I really liked about the job as an adviser. Ther’s change, you'll know a bit about that, tax legislation, whether it's from inheritance tax, or ISA allowances. And I absolutely loved the fact that you never knew everything. And you should never claim to know everything. So, the fact that you're learning every day, I think, is really appealing. And as Justin said, especially now with markets moving around so much and different opportunities, SDR, new fund opportunities to plug into those sustainable ranges we offer where appropriate, it's really very interesting. And we do feel really privileged to be able to have a job, that just means we're learning stuff all the time. And importantly, we need to make sure the funds are running okay. And appropriately. So, there's a lot of… the day-to-day tasks are very important. And it's monitoring those funds, making sure they're adhering to their risk targets, making sure those funds underlying funds we buy, are doing what they should, I’d say that no day is the same, as you say quite right.

Fraser Kerr: Getting out and looking in the whites of people's eyes as well and having a conversation with them. And you know, just, again, getting that insight and update on what they're doing. Even that must just be fascinating as well. And actually, you know, just speaking with people and interacting on such a range of different topics and conversations as well.

Dan Reynolds: We're very lucky, we get to speak to the best people in the industry. Like we try and find the best European Fund Manager or the best US Fund Manager and teams. And the fact that so much is now done on video means you can talk to anyone in the world. And so, we really benefit from speaking to a lot of very clever people. And we do the best we can to interpret that and apply it appropriately to the funds.

Fraser Kerr: Yeah. And I suppose, Justin, it'd be really valuable. I think for our listeners both on the adviser side, and the client side would find it really interesting, you know, just in terms of that outlook piece, where you how you see you guys positioning, things going forward, and how you see yourself reacting to market conditions. 

Justin Jones: We're very fortunate, again, in terms of the broader business to have a great resource in terms of our Global Macro and Research team. And we spend a lot of time with Paul Diggle, Luke, and the guys, they sit just around the corner from us in London. So, it's great to have that kind of link into kind of properly academic economist thinking of the world, as well as what we hear from our Managers. I think what we'd say is taking a step back, it's certainly clear to us that the markets have had a lot to digest. Over the past year or so, we could point to continued worries over interest rates, or inflation, reaching generational highs, we've got wars in the Middle East, we've got problems with shipping. There's all sorts of things that the market can worry about right now. And what we've actually seen is the markets, they call it the wall of worry. So, the markets climb a wall of worry. And I think more laterally, we've certainly seen more positive sentiment from investors. And that really kicked off or pivoted in the fourth quarter of last year. And the markets at that point has started to become more confident that we have indeed seen now the peak of interest rates in this cycle. And the market starts to now look forward to cuts in interest rates across developed markets. And we think then our economic team has been viewed as actually been quite constant on this, that we probably see that a bit later than people are thinking. But from June or July onwards, we start to see interest rates coming back down. And that said, I mean even accounting for bumps in the road, the economic team's view is that inflation should also continue to slow towards target. And it's that kind of inflation retreat that allows monetary policy interest rates, maybe to move a bit lower than the people are currently thinking about at the moment. So, in terms of growth, I mean, we in the UK have been kind of bumping along the bottom. And that's very similar to the European economies as well. I mean, technically, the UK may have been in recession at the end of last year, it will be the shallowest recession we've seen for a generation that's very similar pattern to what we see in the likes of Germany, and France, we do think that actually from here, we start to see growth really accelerate over the second half of this year. And obviously, the emerging markets, we're still very much focused on what's happening there, particularly in China, where we were we were keeping a close watch on things right now. 

Fraser Kerr: And with regards to interest rate, some inflation in particular, what is it that our clients will see and feel on a day-to-day basis that really relates to that, that they would be able to resonate with personally?

Justin Jones: Yeah, so I guess in the UK, we are very much focused around the cost of capital in terms of mortgages. And that kind of wealth effect, in the US is more the wealth effect is linked more to the experience of stock markets and the UK is very much linked to housing. So, what we have seen in this cycle, maybe not quite as bad as some of the initial forecasts were in terms of how the rise in interest rates are going against a very narrow period of time. And we have to take a step back and say, interest rates increased from very low levels to the highest level in 40 years. And the pace of that adjustment was very, very shallow. In other words, interest rates really going up very quickly. We haven't quite seen as maybe as bad an impact as many feared. And maybe that's down to the degree to which the UK mortgage industry is now much more on a fixed rate deals. And there's those kind of maturities come through. So, I guess, going back to your question, where do we see it first, we probably see it first in that kind of personal consumption side of things where people might have a bit more money back in their pocket. And obviously the converse of that is the savers won't be getting as much either 

Fraser Kerr: Yeah, I think it would be foolish of me not with the talent in the room just now, with the information you have available and obviously what our clients you'd be interested, you know, is on, no one has that crystal ball. But you do have that forward looking approach. Have you got any thoughts on the sort of outlook over the next 12 months, 24 months longer term?

Dan Reynolds: Yeah, well, if we look back at what has happened, there's been a lot to digest, rate worries over rate cycles, inflation, slowing growth, geopolitics, these all present challenges, of course. And we've seen markets almost ignore some of that and continue to do really well. And indeed, in Q4, the market became even more confident. And we hope we've seen probably the peak in rate rises now. Suppose today, the pickup in inflation has revived those concerns in some places, and the last mile might be difficult central banks try to lower rates. But even allowing for those bumps, our economic team view is that inflation should continue to slow now, that means monetary policy should ease rates can come down and think the portfolios are really well positioned for that.

Fraser Kerr We're in quite a privileged position at abrdn Financial Planning and because of that accessibility, which we have to you guys being able to speak with you, you know, if there's direct client queries coming in, you know, being able to just have that relationship have you here in the room today, you know, it's invaluable for us, but then by extension, also our clients as well and the information that they can receive as well. So, Justin, Dan, I really just want to take the time to thank you both again for being here today. Like I say, it’s a wet and cold and miserable day here in Edinburgh. So, I really appreciate the journey all the more. But thanks again, gents. I really appreciate you making the effort. 

Justin Jones: Thanks

Dan Reynolds: Pleasure.

Fraser Kerr: If you want to find out more about the topics that we've discussed, hear more from either Justin or Dan, and the first instance I would always encourage you to contact your financial planner. However, we would always welcome any correspondence directly here at Wealth Wise, as always we'd love to hear from you. If you've got any questions or comments, you can drop us an email at wealthwise@abrdn.com. Wealth Wise is available on all usual podcast platforms, Spotify, Apple, and wherever you access these from please do like and subscribe with any and all feedback welcome. 

Join us next time on Wealth Wise when we're going to be rejoined by Senior Financial Planner Keith Dunsmuir, as well as Scotland's Financial Planning Director Gavin Park, to continue our discussion on the UK is national obsession with property versus investing. Justin Dan, thanks again and thanks for listening.