Our Approach To Selecting Investment Managers

Investment Objectives Not Always Aligned With Investors' Needs

Investments are best considered as part of an overall plan rather than treated in isolation.  They are the 'engine room' of your financial plan.

Our view is that inflation/cost of living increases without undue risk should be the benchmark - that is the real world in which we live and spend our money - not a stockmarket index. 

Most investment managers benchmark portfolios to a stock market index.  This is not always aligned with investor’s needs:  for example, if the stock market falls by 30% in one year (as it did in 2008 and may do so again) managers may congratulate themselves on their clients' portfolios having only fallen by 20% despite the cost of living having increased!

What We Set Out To Achieve

You need to draw money from your investments each year, without being forced to sell when they have fallen.  You don't want to find you have to wait for many years for them to recover.  The purpose of money is to help you do the things you want to do, when you want to do them.

No single manager or company will always make the right forecasts.  It is therefore high risk (and unecessary) to only have investments with one company.  We construct a portfolio of about six investment managers all with different styles and approaches.  We find it is usually less expensive than having a single manager.  When markets fall at least one of them should hold up, and in good years they should all make money.  The investment managers' funds are held in a single custody account to minimise administration.  You can view everything in one place, with a tax report at the end of each tax year.

We select investment managers who complement each other.  For example, some aim to avoid losing money and so give up some of the upside to protect in turbulent or falling markets; others are more growth orientated so when markets rise they capture most of the upside but will be less well insulated when they fall.  The managers invest in a wide range of assets including shares, currencies, fixed-interest and commodities (including gold) on an international basis.

Selecting Investment Managers

It is very unlikely that one investment management company will always get it right.  They may sometimes mistime the markets or simply get it wrong.  As there are many good investment managers it is unnecessarily risky to rely on just one or two.   All investment managers have views on asset allocation - how much in shares, cash, fixed-interest, currencies and gold etc.  This is the most important factor in achieving good returns (in line with the risk you are comfortable taking).

Many investment managers construct portfolios using specialist funds from the whole market, for example, Japanese shares, UK fixed-interest etc.  But it is still one manager's view of the world that dictates the blend of funds (or asset allocation).

We look at all investment managers, preferring those who own their own business.  They tend to be more prudent and thoughtful and don't set out to gather clients' assets regardless of their capacity to invest the money sensibly and wisely. 

Our Investment Manager, Natalie Burnand, selects and reviews investment managers.  We then choose the right mix of the managers for each client's circumstances.  We look at: the potential returns the investment managers set out to make; the risks they take; the people; how they manage their business, and their charges.

Does it work?

The portfolios made money when markets have risen and retained it when markets fell. For example, in 2008 (year of the credit crunch) when the UK stock market fell by about 30% the portfolios retained their value. Over the short, medium and long term they have made more money than cost of living increases – without undue risk.

Independent Analysis of the Managers We Select

We have our own views, opinions and contacts but we consult an independent firm of analysts, Rayner Spencer Mills, to provide quarterly reviews of the managers we select. They look at risk, reward and management.

Money Required For the Short Term

For money required in the short term, usually three to five years, we suggest holding Secure Assets including cash, National Savings Certificates and specific high quality fixed-interest stock.  You spend from Secure Assets, not your investments which are unsuitable for money needed in the short term as they can fluctuate in value.

We work out the amount required using an agreed number of years of expenditure not covered by (sustainable) income, and any forthcoming capital expenditure.

Couple Looking at Board