Quarterly Investment Report October 2018

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

To do this we use Asset Risk Consultants (ARC) private client indices.

We don’t propose to bore you with the technical reasons why the ARC indices are not ideal for comparison. We need to be pragmatic; everyone else uses as ARC as the benchmark so that is good enough for us.


ARC has 86 contributors including all the major stock brokers and discretionary fund management firms. They have replaced APCIMS as the index provider for wealth managers. Their research covers more than 130,000 portfolios and shows returns net of costs.

At the end of each quarter ARC gathers data from contributors and allocates portfolio returns in to one of four categories depending on a risk return analysis: –

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

The reason ARC do this, rather than relying on the fund manager to allocate their own results in to a particular category, reflects that one manager’s balanced fund will not be the same as another manager’s balanced fund. ARC has no pre-set asset allocations, asset class restrictions or concentration limits.

What does EWM do?

We have 6 portfolios that combine growth assets (basically shares in the great companies of the world) with defensive assets (basically global developed world, short dated government bonds combined with UK inflation linked gilts). The EWM 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 etc.

Our 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.

Our 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 market cap weighted approach and include portfolio tilts to small and value as these are known to have increased return historically albeit this comes with some additional risk.

By having pre-set asset allocations we do not suffer from common behavioural biases affecting asset management and do not have to worry about market timing.

Our investment philosophy is driven by process with the aim of capturing the market return for the risk you are prepared to take less as low fees as possible.

This is best illustrated by the following chart which 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 indices in this chart: –

So how does EWM compare to the ARC PCI indices?

We know that our portfolios are not directly comparable to ARC for the reasons outlined above, however it’s interesting to see the risk and return metrics shown in the scatter graph below: –

Presented in a table the data looks like this

Portfolio / PCI Risk relative to world equities % Tolerance bands % 3 year volatility % 3 year return%
EWM P0 0   2.47 5.33
EWM P20 20   3.22 17.39
ARC Sterling Cautious 0–40 0–50 2.56 11.18
EWM P40 40   4.52 29.41
ARC Sterling Balanced 40–60 30–70 4.04 19.83
EWM P60 60   5.86 41.19
ARC Sterling Steady Growth 60–80 50–90 5.40 29.09
EWM P80 80   7.18 52.92
ARC Sterling Equity Risk 80-110 70–120 6.41 36.29
EWM P100 100   8.30 64.85

You’ll note that there are ‘tolerance limits’ to the ARC indices and in some cases the tolerances are higher than 100%. The tolerance bands indicate that different managers will have different allocations to equities in their portfolios and the figures higher than 100% indicate that gearing (borrowing money to invest) can apply.

So what conclusions can be drawn from this?

First of all it’s important to point out that your performance is likely to be different to the returns shown above. This is because you will have invested at a different time and there will be different cash flows in and out of your portfolio. Nevertheless, the data is a useful guide to how the portfolios are doing.

ARC has no index directly comparable to the EWM P0 portfolio; interestingly we have no clients using the EWM P0 portfolio.

For the other portfolio the volatility of the comparable portfolios is similar but the returns of the EWM portfolios has been higher. Ideally the risk would be lower and the returns higher, but you have been compensated for the additional risk.

Our conclusion is that our approach is working; active management, where a fund manager seeks to time the market and make tactical decisions over where to invest at geographic, sector and even company level doesn’t work on average.

Investing is a zero sum game, you get to keep what you don’t pay for. Our process is to seek to capture the returns available from global capital markets less low costs.

“A more realistic description of the stock market is that it follows a random walk with an upward drift” The Undercover Economist, Tim Harford

In a recent FT article respected author, the Undercover Economist, Tim Harford said that “A more realistic description of the stock market is that it follows a random walk with an upward drift”. That’s a great way of looking at the markets; if you can accept it, you’ll understand our advice to stay invested and stick to the plan.

We don’t promise you’ll get a return higher than your neighbour in any one year, but we can promise that if you stick to the plan you’ll be better off in the end.


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.


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.
Jonathan - I would like to say how much TB and I appreciated the time we spent with you yesterday. It was helpful, constructive and informative. You have a very real talent to summarise and deliver complex messages in a meaningful empathetic way. We very much look forward to taking the next steps. MB & TB (Oxfordshire)

Expert Opinion…

Weathering Brexit Uncertainty (or “If it ain’t broke…”)

Jonathan, September 30th, 2019

There is always a temptation to fiddle around with a portfolio’s structure to try to position it ready for potential short-term global events, such as Brexit. Investors would do well to remind themselves that the core tenets of good investing hold true through all market conditions. It is also worth remembering that the efficacy of a portfolio’s strategy should be judged not on the post-event outcome, but in terms of the quality, validity and prudence of its construction discipline in the face of future market uncertainty. Portfolios are well-structured around inalienable investment truths, particularly the value of deep diversification.

Read More
Quarterly Investment Report – June 2019

Dominic, August 6th, 2019

Welcome to our quarterly returns bulletin for the end of June. First of all, we feel we should apologise for being a little tardy with this one. Our excuse is that we have all been away on our holidays and when not doing that, busy serving our lovely clients! This month, we’re going to turn our attention to the benefits of doing nothing.

Read More
How long is long term?

Jonathan, September 23rd, 2019

For many investors – particularly those in retirement - the question ‘how long is long-term?’ could also be translated as ‘I’m getting on a bit, so should I still be investing in the stock market?’. When is comes to systematic investing – that is to say, capturing specific market risks in a disciplined and rules based manner – a subsidiary question might also be ‘should I still own value and small cap stocks, as their excess returns, relative to the market, can take some time to come through?’.

Read More
T: 01993 772467      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.