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.

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 - and 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) 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

When you come to draw money from your investments, you don't want to find that they have fallen (markets do this quite often), it is a bad time to sell and that you have to wait until they recover - the purpose of money is to help you do the things you want to do, when you want to do them.

We therefore construct a portfolio of between four to six investment managers all with different styles and approaches.  When markets fall at least one of them should hold up, and in good years they should all make money.  The aim is to preserve and increase the purchasing power of capital without undue risks.  The investment managers' funds are held in a single custody account to minimise administration and enable you to 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.

Manager Selection

Asset allocation - how much in shares, cash, fixed-interest, currencies and gold etc - is probably the most important factor in achieving good returns (in line with the risk you are comfortable taking).  But it is extremely unlikely that one investment manager will always get it right:  they may sometimes mistime the markets or simply get it wrong.  As there are many good investment managers available we think it is an unnecessary risk to rely on just one or two. 

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 recommend having four to six of such investment managers in a single portfolio. 

We look at the whole market for investment managers preferring investment managers who own their own business as they tend to be more prudent and thoughtful and don't just set out to gather as many clients' assets as possible regardless of their capacity to invest the money sensibly and wisely. 

Our Investment Manager, Natalie Burnand, selects and reviews investment managers.  Hamish then chooses 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 their businesses are managed 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