Magenta Financial Planning provides an ethical/environmental portfolio equivalent to all its standard portfolios, and is focussing on client goals when it comes to measuring performance. 

Gretchen Betts (pictured), managing director of Bridgend-based Magenta Financial Planning, says investment is all about keeping it simple at her firm.

Magenta offers clients six risk-rated standard portfolios and six ethical counterparts. Its primary partner for the standard offerings is Seven Investment Management (7IM).

The firm used to design its ethical portfolios in-house, but has recently begun outsourcing to London-based EQ Investors, which runs a host of specialist environmental, social and governance (ESG) portfolios.

‘When we set up, we thought really long and hard about what we wanted [the investment offering] to look like. We drew on our experience and the ways we have worked in different firms,’ says Betts.

‘We haven’t made any hugely significant changes yet. But we have tweaked our asset allocations slightly in the past year.’

The core of Magenta’s investment strategy is passive, but Betts believes 7IM offers a balance and some degree of active allocation within the passive framework of the six portfolios.

She says: ‘Our historical problem has been, where we were doing managed portfolios, a client would have to agree to make even the simplest of changes. We felt this wasn’t ideal. When we had to move fast or make decisions about asset allocation classes, rather than fund choice, we were a bit restricted.

‘Going for something where there are certain parameters they can move in means there is an element of active asset allocation, but within a passive structure.’

Individual objectives

The firm’s investment committee meets alongside another business that runs primarily active portfolios. This enables Betts and her team to compare performance and assess whether any value could be derived from increasing active allocation. However, they have yet to be convinced.

Betts says Magenta prefers to focus on assessing its investment performance against individual benchmarks set for clients to fulfil their objectives, as part of a wider financial planning strategy, rather than benchmarking against more recognisable barometers.

She says: ‘For cashflow planning, we are trying to achieve the return the client needs for their objectives and life goals, rather than a benchmark. There are individual benchmarks for each client, but while there is an expected return, the client’s needs are our focus.

‘We set ourselves benchmarks for our clients. If we’re comparing in committee, our benchmark is generally to inflation plus two per cent for a balanced portfolio. We use this as a starting point.’

Careful consideration

Magenta’s asset allocation tweaks over the past year are a result of believing some of its lower-risk portfolios to be excessively cautious. The investment committee was integral to this.

Committee members identified concerns about the lower-risk portfolios, which Betts says were exhibiting poor performance on account of lower interest rates and poor performing bonds. They realised clients who were not willing to move to higher-risk portfolios were feeling the effects.

‘We thought some of our portfolios were light in equities and a little heavy in fixed interest and bonds. We know that has not been performing. We’ve looked at it within the risk boundaries and thought we were a bit overly cautious with some of those portfolios. For that reason, we’ve tweaked our asset allocation,’ Betts says.

‘We won’t make short-term changes on just a year’s performance. We would look at a much longer period of time. We would actively look at the fund managers to see if, even if there has been poor performance, their philosophy is still aligned to ours and we remain confident in their management style.’

Ultimately, the investment strategy is there to complement Magenta’s bespoke financial planning service. It just needs to generate clients enough returns to support their life goals.

‘Some clients don’t need massive returns, so it doesn’t matter too much,’ says Betts. ‘It’s a personalised conversation with every client about their performance and whether they are getting the returns they need to live the life they want.’