Portfolio Management London

 

 

Independent Portfolio Management Advice in London

 

 

 

Diversification

 

Placing all your money into a single company share is a very high risk investment. If the company goes bankrupt you could potentially lose all your money. However, if you choose to invest your money in the shares of a number of companies, say the 100 companies listed on the FTSE 100 index, assuming you invest an equal amount of money into each one and one of these goes bankrupt, then the overall loss will be a small percentage of your investment.

 

In essence, the above is a good example of a very basic and passive style of diversification.

 

We provide a service which runs along the lines of an active style of diversification where we are continuously overseeing and advising on your portfolio. We keep up to date with the financial markets and the economic situation of not only the UK but a lot of the major economies of the global market.

 

 

 

Diversification does help reduce your overall risk; however, it is still likely to be affected by the outlook for the economic environment. If an economy goes into recession this may affect the share prices of many companies.

 

A portfolio should therefore be diversified across a number of asset classes.

 

• Cash

• Property

• Equities

• Fixed Interest/ Bonds

• Commodities

 

A theoretical investment cycle is shown below

 

 

Asset Allocation

 

Based on the current and future economic outlook, we advise you on how to spread your investments keeping in mind your attitude to risk. This is the key to successful investing and is called asset allocation . Asset allocation simply means how you spread your money across the asset classes – how much you have in shares, bonds, property and cash.

 

If you choose to invest in pooled investments it is also certainly worth considering spreading your risk across those holdings too. For example, a fund which invests only in one industrial sector, such as technology, will invariably be more risky than funds that invest across the whole range of industry sectors in a market.

 

The asset classes all work differently and are largely independent of each other. If one is going up, another might be going down. It would be very unusual for all asset classes to be going down at the same time.

 

For example, between 2000 and 2003 the top 100 UK shares (the FTSE100) went down by around 50%. However, property values increased significantly (and Bonds and cash also went up). If you had just invested in shares then the value of your investment would have reduced significantly. If you had invested across the asset classes then the loss would have been much less.

 

 

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Model Portfolio

 

Client A has a balanced view for the medium term; on a scale of 1-5, where 1 is cautious and 5 is high risk, the overall risk profile of the client is 3.

 

An asset allocation model has been designed after reviewing the client's circumstances and keeping in mind their attitude to risk.

 

 

The above example portfolio would suit the investor as it has a proportion of funds in liquid very low risk deposit account and can be readily available for an emergency. As the client has a medium attitude to risk, they wish to take a balanced view for the medium to long term. By placing a significant proportion of the investment in low to medium risk Bricks and Mortar Property and Fixed Interest Securities the overall risk profile of the portfolio is reduced.

 

This ensures that in an economic situation when the stock market is not performing well the proportion of investments in other asset classes can still continue to grow. It is important to remember that while lower risk investments may produce lower returns they are also less affected in a falling market. Whereas higher risk investments may produce much higher returns but can face equally spectacular losses.

 

The above model is a very simple breakdown of the different asset classes in which we might place a client after reviewing their individual needs and attitude to risk.

 

However, the crucial point to remember is that once a model portfolio is set-up and agreed, the next stage involves deciding on what sectors and what regions to invest in.

 

An example of this is shown below:

 

 

Once you have agreed sector allocation of the portfolio, the next step is the selection of individual collective funds.

 

This can be a very lengthy process and typically the selection process involves the following:

 

•  Reviewing Annualised Absolute Returns from different funds over the last 5-10 years.

 

•  Comparing the Quartile Rankings of different funds in the same sector

 

•  Alpha

 

•  Beta

 

•  Tracking Error

 

•  Information Ratio

 

•  Sharpe Ratio

 

•  Comparing the Volatility of different funds in the same sector

 

•  Compare Asset Allocation of Different Funds

 

•  Review Fund Manager History and Ratings

 

To access our Portfolio Management London service it could not be easier.  We offer a free consultation and will undertake a review or your portfolio at no charge.