Adventurous
Model Portfolio Q3 2015
All performance data shown above is sourced from Morningstar Direct. The performance of the overall Model Portfolio shown in the performance table above and the performances of the constituent parts of the Model Portfolio (shown in the table) are based upon data sourced from Morningstar Direct and represent a model only; they are not representative of an actual portfolio or fund. Past performance is no guide to the future. ‘Ptl’ stands for percentile and relates to the ranking of the fund within its IMA sector. CB stands for Custom Benchmark. The Custom Benchmark is based upon a composite of the indices/sectors shown above to represent the eValue FE asset allocation output. Morningstar OBSR Fund Ratings are subject to change at any time and without warning. Please see www.obsrfundratings.co.uk for the latest Ratings.
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Adventurous Model Portfolio
– Q3 2015
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Key Facts
The Model Portfolio Service for Avidity Wealth Management was established in October 2010.
Asset allocation is provided by Avidity and sourced from Ibbotson.
Morningstar OBSR populates the asset allocation with funds it considers appropriate and attractive as a result of its in-depth, qualitatively-driven research process.
The objective is to deliver outperformance in each of the asset classes of the Portfolio over the long term.
Investment Objective
The investment objective, as provided by Ibbotson, is as follows: This Adventurous Portfolio is appropriate for investors who have both a high tolerance for risk and a long investment time horizon. The main objective of the Adventurous Portfolio is to provide high growth for the investor's assets without providing current income. Portfolios in this range may have substantial fluctuations in value from year to year, making this category unsuitable for those who do not have an extended investment horizon.
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Asset Allocation1
Performance from 23/03/09 – to quarter end
Growth Total Return, Tax UK Net, In GBP
The Custom Benchmark (CB) used to measure performance is a composite that reflects Ibbotson’s asset allocation output. It is amended over time in line with Ibbotson’s output (last updated in May 2013). As at the end of the quarter the benchmark is composed of the following: 5% IPD UK All Property/3% FTSE Gilts All Stocks/3% IMA £ Corporate Bond Average/38% FTSE All Share/12% FTSE World Europe ex UK/17% S&P 500/9% MSCI Emerging Markets/7% MSCI AC Far East ex Japan/6% Topix. Please refer to the information in the footer below regarding performance.
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How to choose the correct portfolio for you – the risks and costs
We have aligned ourselves with two key strategic partners to offer you a portfolio that is designed to provide you with the correct balanced of risk and return.
Although there are many, some of the more risks that I would like to draw your attention to are:
· Risk of capital – the risk that you will have returned back to you less than your original investment
· Purchasing power – the risk that your money is devalued by inflation
· Market – this risk reflects the tendency for investments to move with the market or entire industrial group or for a particular security, as a result of factors such as economic, political or social events – also known as systematic risk
· Financial – this risk is associated with the finances of the company. Does it have too much debt (the recent declaration of bankruptcy by Enron is a prime example)
· Interest rate – this risk involves how changes in interest rates may affect your investment
· Default – this risk is the chance that the company you are invested in will be unable to service the debt
· Foreign currency – this risk is that a change in the relationship between the values of the UK Pound and the value of the currency of the country in which your investment is held will affect your holding. This is an important risk for international investing
The costs
There are known costs for portfolio management:
· Cost of investing – these can be broken down as such:
Cost of product
Cost of funds
Cost of advice
· Tax – tax drains on portfolio performance over time
· Cost of not reviewing – perhaps one of the greatest costs on fund management and this refers to the cost of purchasing an investment and not reviewing it. As investments go in and out of favour, if a portfolio is not reviewed then it is possible for poor investments to be held for too long within the portfolio offsetting gains or causing a loss.
How our portfolio reduces the cost and risk to your money – common benefits
We have designed our portfolios to limit the risk associated with making investments and to provide you with multiple benefits. The “Adventurous range” portfolio has the following risk mitigating benefits:
· Maximising the chance of your fund maintaining its purchasing power – we have invested in a selection of asset classes that when combined, provide your portfolio with a good chance of maintaining its purchasing power. Although we are comfortable that this blend is appropriate for you, it is important that you recognise there is no guarantee that the growth of your fund will match inflation and as you are in investments that contain an element of risk to capital it is possible that you could receive back less than you originally invested.
· Reduction of risk through diversification across asset allocation – the portfolio is diversified to the asset allocation detailed in the pie chart above. This reduces the risk by investing in a range of assets or sectors. A commonly accepted academic theory by Brinson et al states that asset allocation decisions are the primary determinant of portfolio returns, above market timing and stock selection. With this in mind, we have engaged the services of Morningstar who provide us with the correct asset split for adventurous investor risk tolerance.
· Reduction of risk through diversification across company – the portfolio contains a selection of “collective” investments. Effectively this means that each individual investment that we recommend – i.e. the Avidity Wealth Management Adventurous Portfolio contains a selection of investments. By blending funds in this way, we diversify across funds as well as across individual investment spreading the risk across many investments.
· Sterling denomination – the portfolio is contained within Sterling denominated investments which reduce the cross currency risk.
· Reducing the tax drain – given your current and expected future situation, we will structure your investments in a tax efficient form. We can review your tax efficiency on an annual basis as part of our review service and will take advantage where possible of the various tax efficient routes to invest.
· Reducing the cost of non-review – as part of our service we can offer a review in which we can review your attitude to risk, the asset allocation that your investments are within and the individual funds that you are invested in. We recommend that you partake fully in this review.
· Minimise the cost of investing – in our analysis we have analysed the cost of investments and on balance, we have opted to implement a Wrap Platform which provides you with initial and annual discounts on funds whilst allowing us to place any investments that may be appropriate for you going forward. The costs of these funds on and off platform are listed below.
How our portfolios reduce the cost and risk to your money – specific benefits and risk
As with most things in life, investing is about providing balance between conflicting issues. The portfolios have been designed to be consistent across asset allocation and mandate and we are confident that each of the portfolios are appropriate for an adventurous risk profile.
Avidity Wealth Management Adventurous Portfolio
To provide our clients with a multitude of benefits, we have blended together a portfolio that contains holdings that are designed to be actively managed and reviewed quarterly by OBSR. We have complemented this with passive satellite funds to provide your portfolio with exposure to other markets. The satellite funds are provided by Vanguard.
Avidity Wealth Management Adventurous Portfolio
Asset class / % Asset Allocation / Suggested % Fund Weight / CheckCash / 2 / Cash / 2.0 / 2
Property / 4 / Threadneedle UK Property Trust / 4.0 / 4
Fixed Interest / UK Corporate / 2 / Fidelity Strategic Bond
Vanguard Investment Grade Bond / 1.2
0.8 / 2
UK Equity / 39 / Vanguard FTSE UK All Share
Old Mutual UK Alpha
CF Woodford Equity Income
AXA Fram, UK Select Opportunities
M&G Recovery
Investec UK Special Situations / 15.2
4.8
5.8
4.6
4.0
4.6 / 39
Europe Equity / 14 / Henderson European Select Opps
Jupiter European Special Situations
Vanguard Developed Europe ex UK / 4.8
4.2
5.0 / 14
North America Equity / 13 / HSBC American Index
Legg Mason US Agg Grth
JPM US Equity Income
Vanguard US Equity Income / 2.2
2.4
3.0
5.4 /
13
Emerging Markets Equity / 12 / Lazard Emerging Markets
M&G Global Emerging Markets
Vanguard Emerging Market Stock / 5.0
2.4
4.6 / 12
Asia Dev Ex Japan / 6 / Fidelity South East Asia / 4.2
Vanguard Pacific Ex Japan / 1.8 / 6
Japan Equity / 8 / Schroder Tokyo
Vanguard Japan Stock / 3.6
4.4 / 8
100 / 100 / 100
Advantages
· Blend of advantages – this portfolio offers a blend of advantages offered by the Vanguard and OBSR portfolios
· Liquidity – the funds can be traded easily which means you can have access to your capital at anytime
· Exposure – by combining these portfolios, you are able to gain maximum exposure to the markets, through active and passive management
· Cost – by combining the two portfolios, you benefit from a cheaper annual charge which is lowered due to the use of the Vanguard funds, yet you still get the exposure to actively managed funds provided by OBSR
Disadvantages
· Potential tax – the income and gains from these funds are subject to taxation. To minimise the effects of these we will recommend that you use tax efficient wrappers and that we managed out any gain through capital gains tax planning
· Potential variation from index – as the fixed interest funds employ a strategy of samplification as opposed to full replication, there may be the potential for variation from the index (Vanguard funds)
· Potential returns below the index – as these funds are actively managed, it is possible for the manager to underperform the index and his peers (OBSR funds)
· FCSC Protection – only the UK based funds are subject to FSCS protection. The Irish based funds however, benefit from the appointment of an independent custodian which in effect ring fences the assets from that of the provider to provide a robust level of protection (Vanguard funds)
The cost of this portfolio
Asset Manager / Asset / Weighting % / FundManagement Charge / Additional Admin Charges
Vanguard / Emerging Markets Stock / 4.60 / 0.27 / 0.40
Vanguard / FTSE Dev Europe ex UK Equity / 5.0 / 0.12 / 0.40
Vanguard / FTSE UK All Share / 15.20 / 0.08 / 0.40
Vanguard / Japan Stock / 4.40 / 0.23 / 0.40
Vanguard / Pacific ex Japan Stock / 1.80 / 0.23 / 0.40
Vanguard / UK Investment Grade Bond / 0.80 / 0.15 / 0.40
Vanguard / US Equity Index / 5.40 / 0.10 / 0.40
Cash / 2.00 / 0.00 / 0.00
AXA Framlington / UK Select Opportunities / 4.60 / 0.83 / 0.40
Legg Mason / US Agg Grth / 2.4 / 1.130 / 0.40
CF WoodFord / UK Equity / 5.80 / 0.65 / 0.40
Fidelity / South East Asia / 4.20 / 1.01 / 0.40
Fidelity / Strategic Bond / 1.20 / 0.68 / 0.00
Henderson / European Select Opportunities / 4.80 / 0.85 / 0.40
HSBC / American Index / 2.20 / 0.17 / 0.40
Investec / UK Special Situations / 4.60 / 0.74 / 0.40
Jupiter
Lazard / European Special Situations
Emerging Markets / 4.20
5.00 / 1.03
1.07 / 0.40
0.40
JPM
M&G / US Equity Income
Global Emerging Markets / 3.00
2.40 / 0.93
1.01 / 0.40
0.40
M&G
Old Mutual / Recovery
UK Alpha / 4.00
4.80 / 0.90
0.785 / 0.40
0.40
Schroder / Tokyo / 3.60 / 0.85 / 0.40
Threadneedle / UK Property / 4.00 / 0.81 / 0.40
Who should purchase this portfolio?
This portfolio should be considered by an investor that is:
· Somebody that wants a blend of benefits of active and passive funds
· Happy that only the UK fund based portion (of Vanguard funds) and the entire OBSR fund selection is covered by the FSCS
· Happy that the combination of asset classes provides enough protection from downward movements in one specific market
· Happy to pay their stamp duty and pre-set diluted level on an individual basis, rather than it being taken from the fund (Vanguard funds only)
How Avidity Wealth Management recommend this portfolio is implemented
We recommend that this portfolio is implemented in the following way:
· Through the Avidity Wealth Management Wrap to enable us to enable us to access the funds in an administrative efficient way
· Re-balanced at a frequency agreed with your adviser
· Is placed in a tax efficient wrapper
· The OBSR fund selection is reviewed on a regular basis to ensure the continued stability of the fund manager