Our approach to selecting investment managers
Money required for the short term
For money required in the short term, usually three to five years, we recommend holding secure assets such as cash, premium bonds or national savings certificates. You spend from your secure assets. Your investments are unsuitable for money needed in the short term as they can fluctuate in value.
We top up your cash once a year by selling investments.
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.
What we set out to achieve
We set out to maintain and increase the purchasing power of your capital over the medium to long term. We take account of the risk you are comfortable with and how you would manage if investments fell.
If you are drawing money to spend each year you need to do so without being forced to sell investments which may have fallen. You don't want to wait for many years for investments to recover and in the meantime stop doing the things you like. After all, the purpose of money is to help you do the things you want to do, when you want to do them.
Selecting investment managers
Our Head of Investments, Natalie Burnand, selects managers from all those available in the UK. She monitors them and keeps others on a watch list to call on if she feels a manager is going off-piste or is no longer suitable.
We prefer managers who own their businesses or personally invest in the funds they manage. These managers 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.
No single manager or company will always make the right forecast. It is therefore high risk (and unnecessary) to only have investments with one company. We construct a portfolio of about six to nine investment managers (using their funds), all with different styles and approaches. We find it is usually less expensive than having a single manager. By choosing a blend of managers, we expect that in any given market, the managers will behave differently and at least one will be up. For example, if markets are rising, most managers should benefit, but growth managers will most likely outperform the defensive managers. If markets fall, we expect (at least one of) the defensive managers to hold their value.
We choose the right mix of managers for each client's circumstances. We look at factors including: the potential returns the investment managers set out to make; the risks they take; the people; the culture of the organisation and how they manage their business. Charges are a major consideration.
The investment managers' funds are held in a single custody account to minimise administration. You can view everything in one place and receive a single tax report at the end of each tax year.
Does it work?
Over the medium to long term our portfolios have largely kept pace with inflation and held up well during downturns, without undue risk. For example, in 2008 (the year of the credit crunch), when the UK stock market fell by about 30%, portfolios only fell a few percent. Our mix of investment managers includes defensive managers. They held up well in March 2020 at the beginning of the pandemic, and also in 2022 when markets fell sharply after Russia invaded Ukraine.
We are in a period of moderating inflation after a sharp increase and high interest rates. Markets expect interest rates to fall this year, but this may not happen as quickly as predicted. Portfolios (and all assets) may or may not keep pace with inflation in the short term, however they should continue to do so over the longer term. We work on the premise that for seven years of "feast", there are three years of "famine". During periods of famine, holding managers with a diversity of approaches and views helps reduce risk and increases the likelihood of at least one manager being up in any year. This is important when you come to draw out money to spend. Holding cash to cover short term expenditure provides a cushion during these periods of "famine".
Independent analysis of the managers we select
We have our own views, opinions and contacts, but consult an independent firm of analysts, Rayner Spencer Mills. They look at risk, reward and management. We also have an Investment Committee, which meets four times a year with two members from Hamish Leng & Co. and four external members. The Committee reviews the funds we choose for clients and the funds we have on our reserve lists as well as regularly reviewing our investment assumptions, market conditions and our views of various managers.