View more on these topics

Riders on the storm

How to build shock absorbers into an investment portfolio

Due to the current stockmarket volatility, I would like my investments to be checked to ensure I am not exposed to too much risk. What should my IFA do to ensure I am investing in the right things to match my needs

In today’s market, it is more important than ever for an IFA to develop a methodology and process to be able to recommend to clients the funds and investments that will outperform within their sectors, not just for the odd year but for the longer term.

It is also important that the additional cost that clients incur for investing in an active fund is justified or an investor may just as well have invested in a passive fund that tracks the performance of an underlying index. Aiming for outperformance is not simply a matter of trying to achieve better returns than the index and sector, it is a matter of adhering to long-term asset allocation strategies.

It is important that an investment portfolio is spread appropriately between the four asset classes of cash, bonds, equities and property. If a portfolio is not diversified enough, it will be more volatile due to being subject to the market movements of fewer or similar investment types.

The correlation of the four asset classes needs to be considered to offer some protection from stockmarket volatility. There also needs to be regular analysis of the asset allocation as there will occasionally need to be adjustments to the overall investment, resulting in the selling of some holdings and buying others.

An IFA will aim to provide the most suitable range of investments providing the required return with the lowest volatility over a reasonable period.

As you mentioned in your question, equities, bonds and even property can experience a great deal of volatility in the short term. A collective investment fund offers less volatility then investing directly in a handful of equities.

The choice of fund managers is important as they take responsibility for where the fund invests. An IFA will consider the manager’s experience and the competence of their team of researchers and analysts. They will also look at the markets in which experience has been gained and whether the manager is investing for growth, value or a combination.

Many IFAs do not consider a fund unless it is a certain size, say £50m, or has a track record of ideally over three years so past performance can be analysed thoroughly.

There a number of excellent fund managers who may from time to time move companies or set up their own fund management company. IFAs will take note when fund managers leave a fund and know where they reappear and what new money they are managing.

It is important that an IFA does this as the fund management companies have no obligation to tell investors when a fund manager leaves. An incoming manager may decide to turn the fund over and replace holdings with ones he or she believes are more suited to the fund’s investment remit. This will cause a short-term performance drag due to the costs involved.

IFAs need to be given information about the investment process of the new manager and his or her previous performance. The IFA needs to have conviction in their view that a new manager will continue to deliver returns as expected.

Reviewing a basket of investments is important as they may have been collected on a non-structured basis, for example, by buying an Isa at the end of every tax year with no regard as to whether the investments form an appropriate asset-allocation strategy. As lifestyle changes occur, it may be necessary to adjust investments to move from, say, a capital-growth to an income-generation basis or vice versa.

It is important that IFAs ensure clients maximise the tax-efficient opportunities that are available. There are fewer opportunities available to shelter investments from tax as successive Chancellors have tightened legislation.

A combination of tax-efficient investments with proper asset allocation is the ideal scenario to protect wealth from tax while ensuring growth and income are at the required level.

Kim North is the founder of Technology and Technical


Mortgages plc to increase rates

Merrill Lynch subsidiary Mortgages plc has announced that it will be increasing its rates again by between 0.05 per cent and 0.92 per cent with effect from September 19.Applications on current products must be submitted by September 18.Marketing director Ian Whittaker says: “The continuing volatility in the capital markets mean we have no option but […]

Diversity pays for MPC convertibles

MPC Investors says its global convertibles fund has seen a lot of support from multi-managers, particularly since management groups have been launching multi-asset and total return portfolios.

A shaw thing

Annie Shaw is a freelance financial journalistSince I had ricked my foot the previous week and was headed for Bangalore accompanied by a not very elegant walking stick, a little medical tourism seemed to be in order. I ended up in the MS Ramaiah Memorial Hospital for an “executive check-up”. This is the equivalent of […]

8,000 advisers read JPMAM survival guide in first few weeks

JPMorgan Asset Management’s IFA survival guide has been requested or downloaded by over 8000 advisers in the first few weeks of its launch.The research document collates the concerns of over 200 advisers regarding the changing regulatory environment.In the document, Surviving the Storm: opportunities for investment advisory firms in a changing market, JPMAM addresses adviser concerns […]

Europe: Volatile share prices create opportunities for long-term investors

Mark Page and Laurent Millet, managers of the Artemis European Opportunities Fund, look at why, how and where fluctuations in European markets can generate opportunities for their fund. When asked what the stock market would do next, John Pierpont Morgan is reported to have replied that “it will fluctuate”. His (apocryphal) answer proved accurate. Over […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers. Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and thought leadership.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm