Asset allocation: how 10 advisers invest their clients' money

Last week we looked at how advisers charge their clients for their services. In this gallery, we take a look at ten advisers' asset allocations.

Name: Kay Ingram

Firm: LEBC

Top conservative fund:

  • Invesco Perpetual Distribution

Top balanced fund:

  • Schroder Recovery

Top aggressive fund:

  • Baillie Gifford Japanese

Description:

National IFA LEBC's investment team responded to a stronger pound by moving into UK small caps.

With the pound up 4% against the dollar since the beginning of the year, LEBC's investment committee chair Kay Ingram (pictured) said the team's thinking has changed.

'We have rotated into smaller cap. Strengthening sterling has seen large-cap profits come under pressure.'

LEBC is not optimistic about technology stocks in the US and Asia either. Here, valuations look overstretched. As a result, LEBC is underweight. 

'Short-term relative performance in 2017 suffered for this,' Ingram said. 'But we are now seeing the benefit of this decision.'

Name: Kay Ingram

Firm: LEBC

Top conservative fund:

  • Invesco Perpetual Distribution

Top balanced fund:

  • Schroder Recovery

Top aggressive fund:

  • Baillie Gifford Japanese

Description:

National IFA LEBC's investment team responded to a stronger pound by moving into UK small caps.

With the pound up 4% against the dollar since the beginning of the year, LEBC's investment committee chair Kay Ingram (pictured) said the team's thinking has changed.

'We have rotated into smaller cap. Strengthening sterling has seen large-cap profits come under pressure.'

LEBC is not optimistic about technology stocks in the US and Asia either. Here, valuations look overstretched. As a result, LEBC is underweight. 

'Short-term relative performance in 2017 suffered for this,' Ingram said. 'But we are now seeing the benefit of this decision.'

Name: Oliver Stone

Firm: Fairstone Private Wealth

Top conservative fund: Natixis Loomis Sayles US Equity Leaders

Top balanced fund: JP Morgan US Equity Income

Top aggressive fund: Old Mutual Gold & Silver

Description:

To make portfolios more defensive, Fairstone's investment team has diversified away from traditional bonds and equities into alternatives. 

'Based on current data, we believe the business cycle is moving towards a cyclical peak. So some reduction in risk asset exposures is appropriate,' said head of research Oliver Stone.

Given what Stone has described as 'the elevated nature of most markets' the team is considering cutting equity allocations this quarter.'

The team's analysis shows government bonds and conventional corporate debt currently offer little value in absolute terms and carry duration and liquidity risk. So Fairstone is underweight fixed income.

'We're still happy to hold a select few strategic bond funds with flexible mandates primarily for income generation. But, in general, we believe our alternative managers can provide a steady return stream uncorrelated to bonds,' he said.

 

Name: Isabel Sinclair

Firm: PFM Associates

Top conservative fund: Artemis High Income

Top balanced fund: Jupiter Japan Income

Top aggressive fund: Baillie Gifford Global Discovery

Description:

Holding funds for the long term is key to PFM's investment approach. 

'We select fund managers who do the buying and selling for us,' director Isabel Sinclair (pictured) said.

'If we pick the right managers, we shouldn't need to do much buying and selling ourselves.'

With a 100% equity allocation, the agressive portfolio is not for everyone. But, she added: 'the relatively small number of clients in it are willing to take the risk for the potential rewards.'

PFM decided on asset class proportions when starting its model portfolios in 2007. Since then, the Poole-based firm has made very few asset allocation changes. 

What has changed, though, is property holdings. That said, PFM is nervous about funds that directly hold properties as they are relatively illiquid assets.

Instead, PFM has gone into real estate investment trusts, which hold property equities rather than bricks and mortar. 

Name: James Barber

Firm: Epoch Wealth Management

Top conservative fund: Invesco Perpetual Global Targeted Returns

Top balanced funds: Schroder QEP Global Care

Top aggressive fund: Schroder QEP Global Care

Description:

Barber (pictured) told us that Epoch Wealth Management had been 'bullishly positioned' for equity market growth in 2017,' but the growth exceeded expectations.

Furthermore, he pointed out that today's equity markets do not look cheap in historical terms.

Consequently, Epoch is moving overweight to neutral equities. The firm is also overweight alternatives, and long-short equity funds in particular. These include Odey Absolute Return, Old Mutual Global Equity Absolute Return, Janus Henderson UK Absolute Return and Schroder QEP Global Absolute.

A tilt towards alpha generation means that Epoch is also making less use of passive funds.

'The highest allocation was 15% to 20%, in 2014. It's now just between 1% and 2%, which is our lowest ever allocation to passives.'

 

Name: Allan Harragan

Firm: Grangewood Financial Management

Top conservative fund: iShares UK Gilts 0-5yr ETF.

Top balanced fund: iShares UK Gilts 0-5yr ETF

Top aggressive fund: L&G Global 100 Index

Description:

Grangewood Financial Management's investment process focuses on factors the company believes are in its control. These are portfolio costs, risk targeting via asset allocation and tax minimisation.

'Academic evidence shows most active managers don't beat the market over the long term after costs. So we use predominantly passive investments,' said Alan Harrigan (pictured), financial planner at Maldon-based Grangewood.

This explains why the team avoids making active asset allocation calls and short-term market views.

'Our investment committee reviews asset allocation quarterly. But we don't generally expect to change it often, as we don't make tactical changes.'

'We conduct a whole-of-market review of funds annually. But all recommended funds are assessed on an ongoing monthly basis as part of our valuation and review system.'

The team's selection of low-cost index funds and exchange-traded funds has driven the performance of portfolios over one and three years, Harrigan said.

Name: Richard Stammers

Firm: European Wealth

Top conservative funds: TwentyFour Absolute Return Credit

Top balanced fund: TwentyFour Absolute Return Credit

Top aggressive fund: GVQ UK Focus Fund

Description: 

Putting more than half its ex-UK equity allocation into Asia was European Wealth's most effective asset allocation change in the past year.

Richard Stammers (pictured), investment strategist at the London-based firm, said growth in those regions was even larger than the team had expected.

The firm has also reduced its European equity positions in the past six-to-12 months. It used the proceeds to build positions in Japan, due to the country's successful economic reforms and continued economic growth.

'We still feel Europe is propped up by asset purchases, which is concealing underlying problems,' said Stammers.

'We also recently changed our style of allocations in Europe and Asia. In Europe, we replaced our growth fund with a value fund. In Asia, we brought in a fund with an equity income objective and little exposure to big technology companies, which we often felt had stretched valuations.'

 

Name: Mike Deverell

Firm: Equilibrium Asset Management 

Top conservative fund: Janus Henderson UK Absolute Return

Top balanced fund: Janus Henderson UK Absolute Return

Top aggressive fund: Invesco Perpetual Hong Kong and China

Description:

When he spoke to us earlier this year, Mike Deverell (pictured), partner and investment manager at Cheshire-based Equilibrium Asset Management, was concerned that the recent market correction could herald a change in direction.

'The most significant risk to markets would be if the US Federal Reserve tightened monetary policy faster than expected,' he said.

'That would affect the bond market, and there would be a knock-on effect in the stock market. Some cautious investors who went into equities might switch back to bonds. So we've been positioned cautiously for some time.'

One reason Equilibrium launched its open-ended investment company (Oeic) funds in November is to make small trades on market volatility. Having Oeics lets the team make these trades immediately.

Recent allocation changes include replacing some UK and US equity in January (3% to 5%) with Indian equity and UK smaller caps. Equilibrium also recently swapped 3% of fixed interest with property. 

 

Name: Chris Ling

Firm: Fowler Drew

Top conservative fund: Vanguard FTSE 100 ETF

Top balanced fund: Vanguard FTSE 100 ETF

Top aggressive fund: Vanguard FTSE 100 ETF

Description:

The belief that markets eventually move back towards the average underpins Fowler Drew's asset allocation calls.

'Using the last 150 years plus of data, markets have persistently reverted to a mean level. This trend is our friend: we use it to determine what is under or overvalued,' said Chris Ling (pictured), Fowler Drew's head of investment management.

This helps explain why the investment team thinks the Japanese market has even further to go.

For the same reason, the team increased exposure to US equities, describing the UK market as a 'laggard' compared with other markets.

It also spotted value in emerging markets and initiated an allocation last year. While Ling thinks equities do not look cheap, the team remains overweight as it believes risk-free rates, indicated by index-linked gilts, look expensive.

'There's a large opportunity cost to being out of the markets,' Ling said.

Name: Kasim Zafar

Firm: EQ Investors

Top conservative fund: L&G Short Dates Sterling Corporate Bond Index

Top balanced fund: L&G Short Dated Sterling Corporate Bond Index

Top aggressive fund: Liontrust Special Situations

Description: 

In a world where many asset classes look expensive, Japanese equities continue to offer investors some value, according to EQ Investors' portfolio manager Kasim Zafar (pictured).

'We're particularly positive on Japanese equities, as structural reforms have fed through into corporate earnings,' Zafar said.

'We think the next stage of [Japanese] recovery will see wage increases. Population dynamics are working in favour of this, which should support domestically oriented companies.

Zafar remains bullish on Asian equities. He thinks the region will benefit from synchronised economic growth and technological innovation. 

The team's optimism does not stretch to long duration bonds, however, due to the potential for higher inflation.

'With tight credit spreads, we see little value in either investment grade or high-yield bonds at an asset class level.'

'We like funds with highly flexible mandates, an emphasis on short duration and those that include floating rate instruments, such as asset-backed securities.'

 

Name: Tamsin Caine

Firm: Smart Financial

Top conservative fund: Dimensional Global Short Dated Bond

Top balanced fund: Fidelity Index World Fund

Top aggressive fund: Fidelity Index World Fund

Description:

Smart Financial’s asset allocation was constructed five years and a half years ago with Albion Strategic Consulting. The only change the firm made to Albion’s recommendations was to adopt a zero allocation to inflation-linked bonds.

Smart runs seven risk-rated model portfolios. Albion proposed an allocation to index linkers ranging from 0%, for the highest risk portfolio, to 20%, for the lowest. But the Cheshire-based advice firm could not find a fund with appropriate cost and performance relative to the index.

Tamsin Caine, a chartered wealth manager and head of financial planning at Smart, said: 'We only use passive funds. When it came to index-linked bonds, we couldn’t find a suitable fund to replicate the index.'

Its conservative, balanced and aggressive portfolios have an 80%, 40% and 20% allocation, respectively, to fixed income markets. The adviser predominantly populates this with short-dated bond funds.

The firm’s view on asset allocation has not changed with the credit crunch, quantitative easing, the EU referendum, Trump’s election or 'any other distraction.' 'It is also unlikely to change any time soon,' said Caine. 'I haven’t been hugely surprised by any of the changes in asset class prices, because short-term changes are to be expected.

'We do not try to predict the markets or the impact of global events on the performance of asset classes. We do not make active calls on asset allocation in varying economic climates.' Instead, it adopts a buy-and-hold approach, with portfolios rebalanced annually.

 

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