Service 2
- Investment Strategy
i. Markets Work
Markets reward investors for taking risks. As an investor you have the opportunity to place your savings in the market and obtain a higher return as a reward for taking a risk.
ii. Asset Class Investing - Asset Allocation
You have the choice of investing in various asset classes - cash, bonds, property and equities, plus many sub-divisions of these headings.
Research shows that as much as 80% of the variation in performance from a portfolio comes from the mix of asset classes, rather than from which individual stocks the investor selects.
Our Investment Strategy starts with planning the right asset mix for a client, taking into account his risk profile, time horizon and other factors. We call this the client's Asset Allocation.
iii. Diversification
Diversification reduces risk. This is true for diversification between asset classes, and between all of the stocks in a market sector.
From the Asset Allocation we will gain exposure to markets and sectors through low-cost fully diversified funds. Examples of these funds are:-
o Index Funds - the fund gives the return on an index, including capital gain plus income
o Exchange Traded Funds - these are quoted shares which give returns similar to an Index Fund
o Passive Managed Funds - these give the returns for a market or a sector, but unlike Index Funds, the manager does not have to buy or sell when the index changes. The Manager can add value by strategic trading.
iv. Risk Premiums
The investor will receive an enhanced return from the following factors:-
o The Equity Risk Premium - the increased return from investing in shares, rather than in risk-free government bonds.
o The Smaller Company Risk Premium - smaller companies out-perform large ones over a period of time
o The Value Company Risk Premium - Value companies are those which have a higher dividend yield than the average. This may be because they have under-performed through management failure. These companies are therefore cheap, and tend to recover their value over time. This gives the investor an enhanced return.
v. Costs and Taxes Matter
o Active funds which pick stocks trade frequently and have high initial and annual charges. The increased costs will cause a dramatic reduction in the outcome of your investment over a period of years.
o Arranging your investments to save tax will also make a large difference to the amount of your wealth in the future.
vi. Portfolio Construction
We follow these principles in constructing a portfolio which will meet your investment goals.