Quarterly investment report July 2018

The aim of this report is to demonstrate how the performance of EWM investment portfolios compares to that of other investment management groups.

To do this we use Asset Risk Consultants (ARC) Private Client Indices.

ARC is the go to index provider for wealth managers, covering 86 contributors including all the major stock brokers and discretionary fund management firms and more than 130,000 portfolios.

The size and quality of the data set means that it is possible to assess performance against a peer group covering all the major investment styles, approaches and philosophies.

At the end of each quarter, ARC gathers data from contributors and allocates portfolio returns in to one of four categories: –

  • ARC Sterling Cautious
  • ARC Sterling Balanced Asset
  • ARC Sterling Steady Growth
  • ARC Sterling Equity Risk

The reason ARC do this is that they have no pre-set asset allocations, asset class restrictions or concentration limits. Therefore, because one manager’s balanced fund will be different to another manager’s balanced fund, ARC carry out a risk return analysis and categorise results accordingly.

What does EWM do?

Our investment philosophy is driven by process; the aim is to capture the market return for the risk the client is prepared to take, less as low fees as possible.

The 6 EWM portfolios combine growth assets (shares in the great companies of the world) with defensive assets (global developed world, short dated government bonds combined with UK inflation linked gilts). The portfolios are: –

  • EWM P0 Defensive
  • EWM P20 Cautious
  • EWM P40 Cautious Plus
  • EWM P60 Balanced
  • EWM P80 Balanced Plus
  • EWM P100 Adventurous

In the EWM portfolios the growth assets are always stated first so P0 Defensive holds no growth assets, P40 holds 40% growth assets, P80 holds 80% etc.

The portfolios are managed systematically, what we call an ‘evidence based approach’, which means that there is no judgemental activity as to where monies should be allocated whether this is geographically or by sector.

We use a global market capitalisation weighted approach (i.e. the amount invested by country reflects the value of its shares) and include allocation to small and value shares as these are known to have increased return historically, albeit with some additional risk.

A systematic or process driven approach ensures we are not affected by common behavioural biases affecting clients, their advisers and active managers.

The following chart shows three year returns for the EWM portfolios to the latest quarter end. Also included is MSCI All World index, UK RPI, and UK One Month Treasuries as a proxy for cash deposits.

You can see how the EWM portfolios sit against these wider measures in this chart:

quarterly1

EWM versus ARC PCI

Although the EWM portfolios are not directly comparable to ARC for the reasons outlined, it’s interesting to reflect on the 3 year risk and return metrics shown in the scatter graph below:

scatter

Extracting the data to a chart:

new-table

You’ll note that there are ‘tolerance limits’ to the ARC PCI and in one case the tolerance is higher than 100%. Tolerance bands indicate that managers may have different allocations to equities in their portfolios, and the figure above 100% indicates that gearing (borrowing money to invest) can apply.

Conclusions

First of all it’s important to point out that your portfolio return is likely to be different to that shown above because you will have invested at a different time and there may be cash flows in or out of your portfolio.

ARC has no index directly comparable to the EWM P0 portfolio.

For the other portfolios the volatility of the comparable ARC PCI is similar but the returns are lower. EWM clients have been rewarded for small additional volatility with additional return.

ARC portfolios all have one thing in common; the managers employ a judgemental approach, more commonly called ‘active management’, where a fund manager seeks to time the market, making decisions over when and where to invest at geographic, sector and even company level.

On average, it simply isn’t possible to get an above market return after fees, but there will always be stories in the weekend papers about a stellar fund or star fund manager; that has outperformed. Sadly predicting these in advance is impossible.

Our conclusion is that our systematic approach is working and you have enjoyed good returns compared to appropriate benchmarks. We don’t promise this will always be the case or that you’ll get a return higher than your neighbour in any one year, but we do promise that if you stick to your financial and investment plan you’ll be better off in the long run.

If you have any questions or comments please do get in touch; we’d love to hear from you.

Notes

All data sourced by EWM from FE Analytics as at date shown. Past performance is not a guide to the future.

The information in this bulletin does not constitute investment or financial advice in any form. No responsibility is taken for any action or inaction taken by clients solely in relation to this information.

The bulletin is published for educational purposes only.

Dominic

About the Author

Dom is a qualified and experienced Chartered Financial Planner (CII) and Chartered Wealth Manager CFP (CISI) and a Registered Life Planner (Kinder Institute) with over 30 years experience. His work primarily focuses on retirement income planning, helping clients to maintain financial dignity and independence in retirement. Read more from Dominic...
This article is distributed for educational purposes and should not be considered investment advice or an offer of any product for sale. This article contains the opinions of the author but not necessarily the Firm and does not represent a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but is not guaranteed. Past performance is not indicative of future results and no representation is made that the stated results will be replicated.
Terrific meeting, many thanks. We always drive back from meetings with you wishing we'd met you and Dom years ago - but at least we're with you now! RB

Expert Opinion…

Costs Really Do Matter

Jonathan, December 3rd, 2018

Human beings are not well wired to be investors. Not only are we not very good with percentages - often accepting seemingly small percentage charges as immaterial - but we also grossly underestimate the impact of compounding these deductions from our portfolios over time.

Read More
Quarterly Investment Report October 2018

Dominic, October 26th, 2018

The aim of this report is to show clients how the six EWM portfolios compare to other investment management group’s result in the period 1st September 2015 to 30th September 2018.

Read More
Expert Wealth & FinalytiQ – An Enlightening New Partnership

Jonathan, October 22nd, 2018

Sharp eyed clients may have noticed guest content from the fantastic Abraham Okusanya of FinalytiQ contributed to our Expert Opinion section earlier this year. We're now pleased to be able to announce a new partnership between Expert Wealth and FinalytiQ that will allow us to further improve the standard of service we can offer our clients.

Read More
T: 01993 772467      F: 01993 775067      E: advice@expertwealth.co.uk

Expert Wealth Management, West Wing, The Old Dairy, High Cogges Farm, Witney, Oxfordshire, OX29 6UN


Your Protection: In the unlikely event of your ever having a complaint which we have not been able to resolve amicably, you have recourse to the Financial Ombudsman Service (FOS). This is an independent body which will investigate complaints at no cost to you.  The FOS website is www.financial-ombudsman.org.uk.