Introduction to Thesis

For investment professionals only

Professional investment partners

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Introduction

This brochure is designed to introduce Thesis Asset Management to professional advisers who are considering recommending Thesis as investment managers for their clients.

Thesis group has £6.6 billion of funds under management (as at 31/12/13), and invests on behalf of private clients, charities, pension funds and trusts.

Thesis employs over eighty staff, including highly qualified investment professionals working from four regional offices in Chichester, Brighton, Guildford and Lymington. Our investment analysts research and recommend funds, stocks and asset classes. Our investment managers construct and manage investment portfolios on behalf of clients.

As well as offering a range of solutions to meet client needs, we specialise in developing partnerships with professional firms, and we create both bespoke investment solutions and model portfolios to support them.

Our goal is to be the investment management firm of choice for our professional partners. We aim to be open and straightfoward in our communications and to deliver excellent client service. We believe that investment can be made individual for clients and be flexible enough to accommodate solutions for advisers such as centralised investment propositions.

We have identified seven levels of attitude to investment risk from a low/moderate tolerance to a relatively high tolerance. We apply our investment process to produce model portfolios that most closely represent the seven different attitudes to risk. We use these models as the basis for constructing portfolios on behalf of the vast majority of our clients.

Our aim is to reduce risk in the portfolios wherever we can while still aiming to achieve their investment objectives.

Thesis Asset Management plc is authorised and regulated by the Financial Conduct Authority (FCA).

Introduction to Thesis

Our history

Thesis is a public limited company, incorporated in 1974 by law firm Thomas Eggar, with the aim of offering asset management services to clients of the law firm. Thesis is no longer directly owned by Thomas Eggar, although it is still owned by some of the current and former partners of Thomas Eggar.

The investment management service expanded over the decades to include clients of other firms of financial advisers, accountants and lawyers. Many of our new clients are introduced to us through referrals, and we welcome this chance to develop partnerships with other professional firms.

Independent evaluation

n Our personal investment portfolio service is rated 5 stars by Defaqto, an independent financial research company

n Defaqto has assessed our Optima fund of funds range, and rated it 4 diamonds

n Our personal investment portfolios are analysed by Asset Research Consultants (ARC) on a number of metrics, so advisers can compare Thesis to other private client investment managers

n Our model portfolio services have been risk mapped by Distribution Technology, enabling advisers to compare portfolios from different providers in a consistent and methodical way

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Thesis Asset Management Thesis Unit Trust Management

What we do

As well as managing client portfolios, we specialise in developing partnerships with professionals in financial advice, law, accountancy and tax, and create both bespoke solutions and model portfolios to meet a variety of investment objectives. Within the Thesis group we can also create funds on behalf of clients, and offer fund custody and administration services through Thesis Unit Trust Management.

We believe that constructing appropriate client portfolios requires a deep understanding of risk and return characteristics, not only of the different asset classes but also the underlying stocks within them. Our consistent investment process enables us to blend components to create a series of risk adjusted portfolios, enabling us to accommodate a broad range of investor objectives.

The investment landscape changes over time, and the risk and return profiles of different asset classes also change in response to macro economic events, government policy and market sentiment. We are proactive on all assets under our management, regularly rebalancing the underlying holdings as appropriate, to ensure that investment portfolios remain aligned with clients’ objectives.

Our risk and compliance teams monitor our investment process to ensure that clients’ money is invested as they expect it to be and that appropriate safeguards are in place, in accordance with the requirements of our regulator, the FCA.

Portfolio monitoring and rebalancing, pricing and valuations, client service and reporting

Personal investment portfolios

Models with active

holdings

Optima funds: active and passive

holdings

Bespoke adviser

centralised investment propositions

Compliance and oversight

Models with passive holdings

Risk rated models

Research and selection

Asset allocation

Bespoke fund creation

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Risk rating

Risk and investment objectives

Financial advisers typically prefer to conduct their own client risk assessments and make their own investment recommendations. Alternatively, professionals may delegate responsibility for establishing the client’s attitude to risk and recommend suitable investments to Thesis. We accommodate both approaches and provide investment management services as appropriate.

Where we conduct the risk assessment and suitability recommendations, we classify clients into one of seven segments, each with a different level of risk tolerance from a low/moderate level to a relatively high level. We apply our investment process to produce seven model portfolios, most closely representing the seven different attitudes to risk. We use these models as the basis for constructing portfolios on behalf of the vast majority of clients.

The diagram shows how each portfolio accommodates a different level of investor risk tolerance, from low/ moderate to relatively high. As the level of expected risk in the portfolios increases, so do the potential returns.

Wealth preservation Wealth accumulation

Portfolio 1 of 7 2 of 7 3 of 7 4 of 7 5 of 7 6 of 7 7 of 7

Risk appetite:

Low/moderate risk I can accept small, short term losses, but am still concerned about the safety of my investment.

Moderate risk I am seeking a balance between safety and investment growth potential.

Moderate/high risk I am seeking investment growth and am prepared to accept some losses for potentially higher growth.

High risk I am willing to accept significant risk and potential losses in the pursuit of higher long term investment growth.

Attitude to capital loss:

Low/moderate risk Taking some short term drop in value in an effort to achieve higher long term returns is acceptable. I would prefer the majority of my capital to be held in conservative investments.

Moderate risk Achieving a balance between conservative and higher returns is my aim and I accept that there will be a degree of short term value fluctuation.

Moderate/high risk Seeking higher long term returns is important to me, so I am willing to accept the substantial short term drops in value that may result from investing in more speculative investments.

High risk Maximising long term investment returns is my main objective and I am willing to accept large and sometimes dramatic short term drops in value.

Investment objectives:

I am seeking only a high level of income and do not require any prospects of capital growth.

I am seeking a reasonable level of income and limited capital growth prospects.

I am primarily seeking income and some capital growth prospects.

I am seeking income together with a reasonable degree of capital growth.

I am primarily seeking capital growth with some requirement for income.

I am primarily seeking capital growth with limited requirement for income.

I am primarily seeking to maximise capital growth over the medium to longer term.

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Our investment process

Our investment process has been designed by our dedicated research team and senior investment managers to be applied consistently over time.

We don’t aim to beat every other competitor, over every time period. Instead, we believe that medium to long term performance is delivered through a consistent, steady return. Our portfolios target growth or income, or a mixture of both.

The Thesis investment process results from the input of four investment committees to the Asset Allocation Committee, which then determines overall asset allocation. From this initial allocation, we derive seven model portfolios, each designed to target a different level of potential risk and return.

These seven models are implemented in our personal investment portfolios (PIP, which can be tailored into a bespoke portfolio where appropriate); our model portfolios, with the choice of active or passive underlying holdings; and our range of Optima fund of funds, which can be blended to match the different levels of risk and reward required to meet different investors’ objectives.

The four investment committees (UK Equity, Fixed Interest, Pooled Vehicles and Ethical) meet monthly and on an ad-hoc basis if required. Research for the committees is conducted in-house by our own research department.

UK stock screening

For UK equities, Thesis uses a proprietary stock screening process called TESS (Thesis Equity Stock Screen). The screen is designed to help us to include stock winners and avoid losers among the stock selections that we include in portfolios. The system has been developed and tested by our senior investment team and research department, in conjunction with Cranfield University.

TESS is not a ‘black box’ or algorithmic based system. It is a screening process based on six matrices pertinent to stock selection: dividend yield, earnings, earnings to price, EBITDA to sales (a measure of a company’s operating cash flow), return on assets and prior year’s total return (share price movement and dividend).

Rigorous back-testing indicates that the use of this stock screening process would have delivered outperformance over the past ten years. It is a data mining system which allows us to identify stocks to include in the portfolios and, most importantly, to avoid those predicted to underperform significantly.

Accommodating different levels of risk tolerance: illustrative portfolios

Expe

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ret

urn

Expected risk

CashFixed interestAlternative assetsEquity

Expected risk

Expe

cted

ret

urn

Expe

cted

ret

urn

CashFixed interestAlternative assetsEquity

CashFixed interestAlternative assetsEquity

Portfolio1 of 7

1

Portfolio2 of 7

2

Portfolio3 of 7

3

Portfolio4 of 7

4

Portfolio5 of 7

5

Portfolio6 of 7

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Portfolio7 of 7

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1 of 7 2 of 7 3 of 7 4 of 7 5 of 7 6 of 7 7 of 7

12 3

45

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Expected risk7 of 7

7

5 of 7

5

4 of 7

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3 of 7

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2 of 7

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1 of 7

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6 of 7

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Investment choices

Fund selection and blending

Our fund selection involves a comprehensive, quantitative and qualitative screening process based on a four step approach.

n Analysis of style and peer group, absolute and risk-adjusted performance over a range of time periods. The quantitative screening process usually eliminates around 80% to 85% of the peer group

n Published information is collated and meetings held with the fund manager to assess a variety of factors, including the investment culture of the management group; the style, consistency and experience of the fund manager, their investment process and any other responsibilities they hold alongside their fund management duties; and fund specific considerations such as size, liquidity, fees, gearing and diversity of ownership

n The Pooled Vehicles Committee reviews the quantitative and qualitative analysis and debates the merits of the fund before determining acceptance onto the buy list. The committee comprises portfolio managers and research analysts

n Funds are continually monitored and monthly performance figures are calculated and reviewed. Funds that significantly underperform or experience a substantial change in style or management are automatically put on watch pending investigation and a decision by the committee

Liquidity is an important consideration in our investment selection, and we aim to purchase only assets that can be traded daily. Investments with less frequent dealing would only be used if no comparable investment with daily liquidity is available, and investments with holding period restrictions are generally not considered.

Each risk mandate does not use a pro-rata replica of the same fund weightings, rather the risk level of the blend of funds used at each level is targeted to be appropriate for that mandate. Our fund research team has designed a sophisticated proprietary blending tool used to optimise the recommended selection and weighting of the funds on our buy list for each mandate.

We offer a variety of investment choices accommodating different underlying holdings in order to implement our seven risk rated investment models and meet a range of investor needs. Our aim is to reduce risk in the portfolios wherever we can while still targeting their investment objectives.

Model portfolio services

These portfolios are solutions designed to best represent the output from our investment process. The mix of underlying assets of our models will be broadly fixed at the outset, although it can be tilted to reflect changing economic conditions. This is a cost effective way of diversifying capital across a blended portfolio of underlying assets and funds.

n Active underlying holdings offer the potential to outperform the wider market by investing to anticipate long term macro trends, and can reduce volatility in turbulent markets by underweighting the most volatile stocks. A blend of managers and investment styles can improve portfolio performance, as different market conditions favour different investment strategies

n Passive underlying holdings tend to track the market more closely than active funds and typically have lower management charges. They suit investors that do not want to pay for potential outperformance of the market, and they also enable investment without the risk of star manager departures or changes to the investment team

n Optima funds combine both active and passive underlying holdings within a unit trust structure, giving your clients the benefits of active asset allocation without the potential tax events that may be triggered by the sale of individual holdings. No capital gains tax is due on holdings bought and sold within the fund for the period a client remains invested

Bespoke portfolio services

Our bespoke portfolio service enables us to tailor your client’s portfolio if their circumstances mean that our models are not the optimum solution for them. We can accommodate ethical preferences, legacy assets, tax planning, offshore solutions and alternative currencies. Individual reporting and ongoing review meetings with a dedicated investment manager make this service a highly personal solution.

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Professional partners

As well as offering a variety of investment services to suit different types of client, we tailor our services for different types of professional partner.

Services for financial advisers

Putting advisers in controlMany advisers who recommend their clients to Thesis prefer to retain the responsibility for ascertaining their clients’ attitude to risk and making suitability recommendations. Others are happy for us to manage the risk and suitability work. Either way, advisers choose how much of the client’s relationship they want to manage, and Thesis helps them to deliver the most suitable investment solutions.

Centralised investment propositionsSome advisers want to offer own-brand solutions to their clients: Thesis can deliver investment models for advisers to market under their own brand. We work together to develop the proposition, including asset allocation, client reporting and defining the terms of reference for the investment committee. We are experienced in helping advisers deliver their own centralised investment proposition.

Independent ratings and reviewAdvisers can use independent third parties to compare Thesis to other investment managers. Our personal investment portfolios are rated by Asset Risk Consultants (ARC), and our Optima fund of funds are rated by Defaqto and classified to IMA sectors. Independent risk assessment company Distribution Technology has evaluated and risk mapped our model portfolios, which are rated 5 stars by Defaqto.

Creating investment solutions

The adviser’s challengeAdvisers typically consider a range of investment criteria in order to meet the needs of their clients. These criteria include variable investment amounts, different capacity for loss, levels of risk tolerance and a wide variety of investment objectives and time horizons.

Managing individual investment portfolios across a diverse range of needs is often more than many adviser firms can profitably manage, especially if they also advise on areas such as tax efficiency, inheritance and estate planning, or income protection.

Where clients with similar investment objectives can be grouped together, an adviser may invest each client segment in the same strategy or fund(s), if they can demonstrate that this approach suits each client on an individual basis. Offering clients with similar investment circumstances different advice may be perceived as unfair treatment, so advisers need solutions that can accommodate all clients within a particular segment. Equally, advisers need a range of solutions to address the needs of a number of client segments.

Discretionary managementThesis offers discretionary investment management services based on seven different levels of risk tolerance. These risk profiles are accommodated in multi asset personal portfolios tailored to suit individual clients, as well as model portfolio services that use both active and passive underlying holdings, and diversified fund of funds.

Our asset allocation process incorporates the more helpful elements of modern portfolio theory (MPT) such as diversification of asset classes and mitigating the risks of asset correlation. We then use propriatary research, analysis and modelling to improve client outcomes by replacing the less effective elements of MPT (a reliance on the past performance of asset classes, the static nature of the MPT portfolio) with a more appropriate, forward-looking and dynamic approach.

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Delegating investment management service to Thesis means advisers are free to spend more time with their clients and strengthen the personal relationships that clients value. The benefits of using Thesis discretionary management services include:

n diversified multi asset approach - classes, regions and fund management styles

n fully resourced research teams

n asset allocation expertise, including dedicated fixed income comittee

n expert fund analysis, due diligence, selection and blending

n professional portfolio design and construction

n risk parameters to suit a range of investment needs

n rebalancing to prevent mandate drift

n strategic action to mitigate market events

n performance reporting, valuations, statements

Own brand investment modelsAdvisers may want to offer clients an investment service where Thesis provides the underlying management. We offer ‘white labelling’ for investment models where the adviser firm can market the services under its own name.

This has the advantage of enabling advisers to offer clients a comprehensive financial service without the associated resource and costs required to manage investment portfolios. Responsibility for defining the investment policy can reside with Thesis or may be determined through an investment committee formed of representatives of both Thesis and the participating adviser firm.

Fund custody and administrationAdvisers who wish to establish collective investment schemes, to meet the needs of a particular client segment or for clients such as family offices, can do so through Thesis Unit Trust Management. This part of the Thesis group creates and manages collective funds and provides custody and administration services for third parties. Advisers can benefit from consultation on appropriate fund structures and investment policies as well as the provision of governance and compliance from a highly experienced team.

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Services for lawyers

Suitability assessmentYour client may already have a financial adviser who has conducted an assessment to establish their attitude to risk and the suitability of an investment. In such cases, we provide investment management services on the basis of the adviser’s recommendation. Where Thesis is responsible for ascertaining risk and suitability, our highly experienced professional investment managers will undertake an extensive client assessment to determine the appropriate level of targeted risk and return. We then recommend a suitable investment strategy to meet their investment objectives.

Trust and family offices Thesis group has the ability to create and manage collective investment schemes (unit trusts and open ended investment companies, known as OEICs) for specific investors, subject to minimum investment levels. This ability to create customised investment vehicles can add value for clients in areas such as tax planning.

Dynamic risk and income investingSome clients have very particular and personlised investment requirements which need to take account of their unique circumstances. This can include the investment of personal injury award monies, for example, to accommodate an ongoing need for income as well as drawdowns for periodic medical treatment. Those approaching retirement may also want a more personal management service for their investments, moving the portfolio focus away from capital growth and towards income producing assets as the retirement date draws closer. Our bespoke portfolio management services can accommodate a variety of individual lifestyle needs.

Services for trustees

Investment advice and expertiseTrustees have a duty to obtain and consider proper advice on the management of trust money. Thesis is experienced in helping trustees to formulate an investment policy statement and strategy to support trust objectives. With our help, trustees can be confident that their investment approach is suitably diversified, risk averse and purpose-built for them.

Maintaining a balanceWe can help to ensure that a balance is struck between income producing and capital appreciating assets, so that where necessary there is a fair division between income beneficiaries and the ultimate capital beneficiaries. Whether a trust is focused on longevity or making financial distributions to serve its purpose, Thesis can help devise an appropriate strategy to manage the cash flow and expenditure in a way that allows the trust to best meet its current and future objectives.

Helping with tax mattersThesis can help trustees keep financial paperwork in good order to help fulfil tax reporting responsibilities. Trustees are jointly responsible for reporting and paying any tax due, so it’s obviously important to ensure that tax matters are up to date, allowing any of the trustees to fulfil this duty easily when the need arises. Our comprehensive reports as at 5 April are designed to make tax reporting as painless as possible.

Professional partners

Contact usTo find out how Thesis can deliver the right investment management services for your clients, please contact our business development team.

Lawrence Cook Director of Marketing and Business DevelopmentT: 01483 406 115 M: 07899 802 048 E: lawrence.cook@thesis-plc.com

Stephen Neal Business Development ManagerT: 01483 406 116 M: 07817 829 480 E: stephen.neal@thesis-plc.com

Ian Hunter Business Development ManagerT: 01590 613 592 M: 07854 267 766 E: ian.hunter@thesis-plc.com

www.thesis-plc.com

Issued by Thesis Asset Management plc. Head office: Exchange Building, St John’s Street, Chichester PO19 1UP. Authorised and regulated by the Financial Conduct Authority. The value of an investment and the income from it can fall as well as rise, and investors may not receive back the amount they invest. Past performance is not a guide to the future. TAM1401_13

Head OfficeExchange Building, St John’s Street, Chichester, West Sussex PO19 1UP Tel: 01243 531 234

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Guildford: 01483 304 183 Lymington: 01590 613 580