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My asset allocation: London IFA makes case for evidence-based investing

My asset allocation: London IFA makes case for evidence-based investing

‘We see ourselves as being in the wealth preservation business,’ said Simon Ainley, partner of Hampton Wick-based Holland Hahn & Wills (HHW), who added most of his firm’s clients were retired or approaching retirement. ‘We try to provide consistent annual returns for them that’s above inflation plus a margin.’

Active aversion

Key to HHW’s wealth preservation approach are the principles of evidence-based investing (EBI). EBI focuses on the benefits of diversification, of low-cost passive funds and of well-established factors such as the long-term outperformance of small cap and value stocks.

What the firm does not try to do is predict the markets. ‘We assume markets price in all the information we currently know. We believe in the efficient markets theory,’ Ainley said.

As such, and in line with its EBI approach, HHW avoids active funds and active investment decisions that increase fund turnover. ‘High management charges and high portfolio turnover can quickly erode client returns,’ Ainley said.

Fund consolidation

A focus on low turnover and non-active funds means HHW’s model portfolios are competitively priced. The cautious fund charges 0.28%, the balanced 0.3% and the aggressive 0.32% (excluding advice fees and platform charges).

HHW has run model portfolios since 2006. The firm has always held Dimensional and iShares funds, which have been the core of its portfolios.

Key changes include reducing the home bias from 50% UK allocation to 33% ‘and we are expecting to reduce it to 20%’. And, HHW has taken on new passive and factor-based funds as they have become available.

This has enabled the firm to reduce its fund holdings. ‘We can provide the same level of diversification today with seven funds as we might previously with 27 funds,’ said Ainley.

Danger signs

Despite its non-active approach, HHW is currently allocating towards short-dated bonds. ‘We are short-dated because, as interest rates rise, it is likely the long-dated bond funds will be more volatile,’ said Ainley.

 

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