Private and stable
Moudy El Khodr, ING PB
ING Private Portfolio Management is the wealth management arm of ING Private Banking (ING PB) in Belgium. It is a global investor and its investment approach is long term-oriented. It uses various instruments and model portfolios, according to the client’s risk appetite, as well as tailor-made portfolios. Assets under management amount to $40 bn, of which approximately $11 bn-$12 bn is managed in Belgium.
Moudy El Khodr is head of portfolio management for the south region at ING PB. He originally joined ING in 2001, working at ING Investment Management (now NN Investment Partners) in Brussels and The Hague until 2011. He rejoined the firm in 2014 after three years at Petercam, where he managed a US equity income fund, and remained there until 2018, when he took up his current position. He also worked at Banque Générale du Luxembourg in asset management between 1998 and 2001, and started his career at Euronext Brussels in 1998.
We are obviously more oriented toward private clients than institutional clients. We have both a model portfolio and tailor-made portfolios. Here, there are different characteristics for each client: we can invest in bonds, equities, third-party funds and our own fund of funds. If you run a fund, your strategy is singular and clear. I used to run a US equity dividend fund, but now I have a much wider choice of investment options. Private clients have a variety of needs. It’s a challenge but it’s a nice part of being on the wealth-management side.
IROs tend to be very data-driven, which can be a problem for firms like ING PB because we don’t appear in any public databases in terms of assets under management or holdings.
That’s a very good question. We don’t have one single linear entity in the way a fund does. We get to big numbers but you don’t see public aggregation of that data. Our holdings are more sizable than you can see. In Belgium, we have €10 bn-€11 bn ($11 bn-$12 bn) in assets under management, with just under half of that held in equities.
Private banks tend to be stable shareholders. Once you are in, there is more stability than in a fund, as – unfortunately – funds increasingly tend to be driven by shorter-term metrics. We obviously have performance pressure, but it tends not to be as short term. So if a company is selected for our clients, we don’t trade around quarterly results. IROs should therefore consider us as long-term, stable holders.
Teams and colleagues collaborate and a very restricted team comes up with a model portfolio that is followed by portfolio managers or used as a source of inspiration. Because of the range of clients, however, some might want tailor-made portfolios: for example, a client might not want energy stocks as they are polluting. Within discretionary management, there is more consistency. In advisory, clients may ask our advice or direct us.
We don’t have direct equity mutual funds labeled ING anymore. We have a true open architecture, benefiting clients but also our fund of funds. It depends on clients’ needs. The range of clients is extremely wide in private banking. For example, if capital preservation is a key criterion for a client, we would choose something well diversified. If there is a low level of knowledge, we choose well-diversified solutions. On the other hand, if the client is financially sophisticated and knowledgeable, direct lines are more appropriate, as are derivatives or hedging strategies.
Asset allocation decisions are made centrally by our investment office. We are currently slightly underweight equities so have less than €5 bn in direct line and equity funds. We tend to favor European and US stocks. For more exotic markets such as Latin America and Asia, we tend to use funds. For the US and Europe, we use both direct line and funds (including ETFs).
We do collaborate in Belgium and Luxembourg and have done for many years. In other regions, we increasingly share information. Needs vary by country; some are more international, some more regional, some more risk-averse, some more growth-oriented, some prefer dividend or income thematics. So while we have our own solutions, we do share information.
Personally, I am a long-established value guy: Warren Buffet, Rob Arnott and Ben Graham have been our mentors for years. Today I don’t tilt to any one style because each client has different needs.
In our model portfolio we tend to be pragmatic: the committee deciding the model portfolio is composed of four experienced portfolio managers, and we encourage diversity as an enriching factor within that team, including diversity of investment styles.
We use screens as a support, as a tool to help decide and build a portfolio. We do not use a pure quant model.
It depends on the client, on volatility, and so on but typically 18 months. Around 35 percent turnover would be usual for us in normal circumstances.
Mostly we have an idea but it is not purely quantitative – [so it isn’t just], for example, 20 percent+ upside.
There are almost no restrictions for advisory, though we do try to avoid very small and illiquid names. In discretionary, we tend to focus on mid to large caps, so around $5 bn upwards.
There are laws and principles we follow. For example, Belgian law means we do not buy defense stocks. Increasingly, there is an ESG approach, so we avoid a certain number of controversial names. It’s going more in that direction but it’s up to the client to decide whether it wants more stringent ESG criteria. We also have our fund of funds in an ESG version, which is increasingly popular.
Yes, more and more so, starting with awareness and ramping up to full ESG solutions.
I’m not a fan of buybacks. I tend to think of them as a ‘date’ and dividends as a ‘marriage’ – much more stable (and harder to quit). Dividends are more serious. If a company has nothing better to do than buy back stocks, that’s a pity. It should invest in its organic growth or bolt on M&A. Maybe the Covid-19 crisis might raise some questions on how we think about buybacks – and even dividends – in the future.
In our model portfolio, there are about 40 names, so it’s fairly concentrated. We review our holdings weekly to assess whether we are comfortable with the portfolio. Today we have some defensive names and the million-dollar question is whether we should take those out and go more aggressively into sectors that have underperformed – selling utilities in the US and Europe and putting the proceeds to work in lagging sectors. Utilities year to date have performed very well: they’ve fallen only 13 percent-14 percent, whereas the market as a whole has fallen north of 21 percent.
Our average position for a blue chip ranges between €20 mn and €35 mn. Our biggest position is €110 mn.
We look at the strength of a balance sheet, free cash flow generation and recurring revenues. We obviously also look at valuation. Today, the resilience of a business is important given what’s going on with Covid-19. We have a monthly equity forum where equity specialists within private banking (and external guests) discuss a sector or idea. Then some of us meet to decide how and what to implement in the model portfolio.
Absolutely. I like to meet management or at least have a call before I make a decision on any stock. That call can be for 15-20 minutes because I will have prepared the questions I want answered.
For example, take a company with marginally positive free cash flow, paying a big dividend, doing buybacks and with newly announced big capex plans: soon you will have negative cash flow, so something has to give. That’s something I’d ask about. My goal is to understand what levers the firm has in order to maintain free cash flow, dividends and so on. These are the sort of questions I like to focus on, rather than necessarily listen to the pitch.
Go for consistency rather than a one-shot visit. It builds trust and you get to know a company really well. That’s where IR can add value. I’d like to get 45 minutes (in person or via videoconference call) with a company at least once a year. I don’t want to meet management once and know I’m not going to meet it again for five years.
You don’t necessarily have to meet face to face but you can allocate time via conference/video calls. This crisis has shown we can all work remotely and efficiently. Brussels isn’t London or Edinburgh but there is big money beneath the surface, especially in private banking.
We are a stable, sizable, long-term holder. Brussels is easily accessible from Paris (one hour and 10 minutes) and London by train. It is less than an hour’s flight from Frankfurt. Great mussels, beer and chocolate, too!
It is still too early to say when it will end and how long it will take for things to get back to normal – or at what price. In 2008, the banks and the financial industry were the bad guys but now we could be the good guys as we will need to help companies and governments with loans to get the economy back on track.
We are a facilitator and this crisis might give the financial community the opportunity to repair its bad reputation, so that might be a positive. In terms of assets under management, we need to limit the damage to clients’ portfolios, and we are managing that carefully.
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Gill Newton is a partner at Phoenix IR, an independent investor relations consulting firm that also operates Corporate Access Network
