Agenda Module 1 - Risk, Volatility & Timescale Module 2 - Asset - PowerPoint PPT Presentation

Agenda Module 1 - Risk, Volatility & Timescale Module 2 - Asset Allocation Module 3 - Identifying the Building Blocks Module 4 - Reviewing a portfolio

This Module… Active vs Passive investing Off the shelf solutions Trackers and ETFs and how to choose them Core & Satellite investing Choosing the active components

Active vs Passive investing

Active Investing Definition Where a fund manager seeks to add value in excess of the market returns by choosing what to buy and sell at any given time

Passive Investing Definition Avoiding the risk of choosing the wrong manager by instead choosing a market in which to invest, and then tracking it by buying the whole market in the right weights

Active vs Passive Investing Active Investing Passive Investing Pros Cons Pros Cons Removes risk of Tracking error and costs Beat the market Often don’t beat the choosing wrong mean you will always (sometimes) market manager underperform market Diversify views on the Those views might be At the mercy of markets Relatively low-cost market wrong on the way down Wide choice Relatively expensive Wide choice Perhaps a bit dull?!

Smart Passive/Beta Investing Definition Using index tracking, but constructing the trackers differently than the usual market-weighted approach, for example with equal-weighting or book value.

Active vs Passive Investing The last word? “A low-cost index fund is the most sensible equity investment for the great majority of investors.” - Warren Buffett

Off the shelf portfolio options

Off the shelf options Sectors Mixed Investment 0-35% Mixed Investment 20-60% Mixed Investment 40-85% Flexible Investment

All Sectors Ti ese four groups determine what the underlying funds are intending to achieve Growth Income Capital Protection Specialist Ti ese sub-groups indicate the primary asset class the underlying fund invests in Fixed Mixed Mixed Equity Equity Income Asset Asset Money Market UK Gilts UK Equity Income UK Equity & Bond UK All Companies Mixed Investment 0-35% Personal Pensions Income Shares UK Smaller Companies Short Term Money Market Global Equity Property UK Indexed Linked Income Mixed Investment 20-60% Gilts Japan Protected Specialist Shares Japanese Smaller Companies Sterling Corporate Targeted Absolute Mixed Investment 40-85% Bond Asia Paci fj c Inc Japan Return Shares Asia Paci fj c Exc Japan Technology & Sterling Strategic Flexible Investment Telecommunications Bond China/Greater China North America Sterling High Yield Bond North American Smaller Cos Europe Excluding UK Global Bonds Europe Including UK Global Emerging European Smaller Cos Market Bonds Global Global Emerging Markets

Off the shelf options Should you use them? Yes! - as a core holding - if you’re disinterested / short of time - opt for passive versions if possible

Off the shelf options Major players Active Passive • Jupiter Merlin • 7IM AAP Portfolios • Premier AM • Architas • Fidelity • Vanguard Others are available!

Core & Satellite Investing

Core & Satellite Investing How it works Satellite Core Satellite

Core & Satellite Investing How it works Indiv Sector Multi-asset Indiv Sector

Core & Satellite Investing How it works Active Passive Active

Core & Satellite Investing My recommendation Passive, multi-asset core, 80-90% of portfolio Sector satellites, also passive, 10-20% of portfolio Active managed satellites for fun, maybe

How to research Off the shelf portfolio options

How to research Trackers and ETFs

Trackers and ETFs The difference Trackers ETFs • OEIC structure • More like a share • Trades once a day • Trades constantly • Wide scope • Beware synthetics Watch for trading costs on platforms

Core & Satellite Investing How it works Indiv Sector Multi-asset Indiv Sector

Trackers and ETFs My recommendation Stick with tracker funds Choose by sector

Trackers and ETFs Major players Trackers ETFs • Vanguard • dbx Trackers • BlackRock • Lyxor • Legal & General • iShares • HSBC • ETF Securities Others are available!

How to research Active funds

Active Funds My recommendation Only a small, satellite part of your portfolio Treat them as ‘bets’ - the term is up to you Again, choose by sector - Asset Allocation first!

Core & Satellite Investing How it works Active Passive Active

Filling up your asset allocation Final thoughts 5% Overseas Equity 13% 5% Most = developed regions 15% • US • Europe UK Equities Overseas Equities • Japan 37% Bonds HY Bonds 25% Property Not much emerging markets Commodities Cash unless adventurous

Filling up your asset allocation Final thoughts Bonds & HY Bonds Most = UK 25% 37% Little bit of developed markets • US UK Equities Overseas Equities • Europe Bonds 15% HY Bonds • Japan Property 5% Commodities 13% Include Gilts Cash 5%

Filling up your asset allocation Final thoughts How many funds? One per asset class or sub-class is plenty Too many funds takes the fun out of it - makes work For larger asset classes, and larger investments, maybe more