Gordon Kearney, Director and Financial Adviser
Posted in Investing, Tax Planning on 26.09.11

The current market turmoil and our portfolio contruction

The events of the past week have been driven by the continued stream of anaemic US economic data and the loss of its much coveted triple A rating. At the same time investors in Europe were confronted by the news that Italy has now taken centre stage in the European debt crisis as its cost of borrowing rose to match that of Spain. The UK has not escaped the fallout with the FTSE 100 having fallen 14.2% in 13 days[1] .

No-one knows how these dramatic market events will unfold, whether we are looking at anything as bad as the financial crisis of 2008, or whether policy makers will be able to calm worries over growth and debt. However, we believe perhaps now is a good time to remind you of our investment process and how that offers protection against volatile market conditions. The three key elements are risk management, diversification and regular review:

Risk Management

Primarily it is of vital importance when creating an investment portfolio to manage the level of risk as this in turn reduces volatility, particularly in times of significant turmoil as we are currently experiencing. All of our portfolios have this aim at the very core of their construction and are directly linked to the FinaMetrica risk profiling questionnaire that our clients complete at the very start of the investment process.

Diversification

The primary method of managing risk is to diversify between different asset classes (bonds, property, equities etc) as it is the relationship between asset classes that determines the level of risk within a portfolio. All of our portfolios have a wide range of asset classes (in some instances as many as 11) ensuring that there is never too much exposure to any one particular asset class and therefore reducing correlation to equity markets, particularly in our lower risk portfolios. Crucially when we design our portfolios we, in conjunction with our economic adviser, Michael Hughes, build them for the long term based on a 10 year strategic view of what we believe will be the key drivers of economic growth and investment returns.

In addition to asset class diversification we further diversify our client portfolios by investing in a range of funds often ‘blending’ funds that we believe have complimentary investment styles. Over the past 18 months we have been increasingly defensive in our fund selection and this has been reflected in the types of investment funds that we hold within our client portfolios. It may have appeared that some of the funds within our portfolios were on the face of it under-performing, however, clearly the events of the last week have vindicated our defensive stance. Furthermore all of the funds within our model portfolios are scrutinised every month by our investment committee led by myself and attended by Michael Hughes to ensure that they still warrant inclusion.

Regular Review

Finally we ensure that our clients’ portfolios are reviewed at least every 12 months to ensure that they are still appropriate to the client’s financial planning needs, objectives and time horizons and are in line with the prevailing economic conditions and our investment views.

Summary

While it is virtually impossible to isolate any investment portfolio from the current market turmoil we firmly believe that our adherence to the sound investment management principles highlighted above will ensure that our client portfolios will be spared the excesses of the current savage market falls. We trust that in reiterating our investment processes, which will remain unchanged however current events unfold, this provides you with a degree of assurance.

We will remain in regular contact during these unsettling times, however, if you have any concerns or queries regarding the investment markets or the impact on your portfolio, please get in touch with your Fiducia adviser. As always we are here to answer your questions, provide advice and offer reassurance when it is needed.

I thought it appropriate to finish with a comment made by Tom Stevenson, a regular columnist in the Sunday Telegraph: “This is not a time to crystallise today’s low prices. History shows that investors are rewarded at times like these by walking towards the crisis, with eyes wide open, not running from it in a blind panic.”

 

Gordon Kearney BA (Hons), IMC

Head of Investments, Director

If you would like to know more about how we as Financial Advisers can help you  with your Investments then visit the Investment Management section of  our website: Investment Management or send us email at: email@fiduciawealth.co.uk

The information contained in website is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The information is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Fiducia Wealth Management Limited, or any associated companies or persons, its officers or its employees, for any loss occasioned in connection with the content hereof and any such action or inaction. Professional financial advice is necessary for every case.

Fiducia are an award winning firm of Financial Advisers based in Dedham near Colchester situated in the heart of Constable Country on the Essex Suffolk border. www.fiduciawealth.co.uk

Fiducia Wealth Management Ltd. Dedham Hall Business Centre, Brook Street, Dedham, Colchester, Essex, CO7 6AD.

Fiducia Wealth Management Ltd. is authorised and regulated by the Financial Conduct Authority. FCA No. 408210

Gordon Kearney, Director and Financial Adviser
Posted in Investing, Tax Planning on 26.09.11