Risk assessment

We take considerable time to understand your own risk tolerance. This process starts with clients undergoing a detailed psychometric risk analysis, developed by industry leaders Finametrica (www.risk-profiling.com). This is followed by a full and frank discussion of the parameters of risk and return, and what you can expect from an investment portfolio in the real world of investing. This includes quantitative analysis of the expected returns and potential short-term losses that portfolios of varying risk offer.

Multi asset class portfolios

By utilising both traditional and non-traditional asset classes we can not only provide increased diversification over and above that inherent to traditional stock and bond portfolios, but also improve expected returns. We build portfolios with collective funds that are structured to provide the capital market return from a specific sector. We access the broad returns available from world capital markets but engineer portfolios to garner the additional returns available from those sectors of the market that offer higher returns, e.g. ‘value’ and ‘small’ capitalisation stocks.

Institutional Collective funds

Collective funds are the most effective holding structure for private investors due to the diversification, cost and tax minimisation benefits. Newton Investment Management, who manage monies for private clients on a segregated basis (portfolios of individual securities) and a collective basis, estimate that the cost and tax savings for their collective portfolios are approximately 1% per annum – a significant saving over the medium to long-term. Collective funds allow you to hold thousands of securities from around the world, thus benefiting from real diversification that only ultra-high-net-worth private investors can replicate.

Collective funds, unlike segregated portfolios, are not liable to capital gains tax on any security sales - a very significant benefit which allows fund managers to reposition their portfolio allocations without incurring the tax liabilities which a segregated portfolio would incur.

We only utilise institutional collective funds which benefit from exceptionally low costs compared to their retail counterparts. They have no initial charges and annual management fees average 0.47%. Most retail funds charge between 3 and 5% initially and have average annual management fees of 1.62%*. Institutional funds have high minimum investment levels, but due to our size and scale we can provide access to these funds, which would otherwise be out of reach to the majority of private clients.

*Fitzrovia 2005 annual charges report

Passive investment – not index tracking

We do not use index funds which aim to deliver a return linked to a specific stock market index, as these funds naïvely track the performance of an arbitrary index, and are forced to trade in line with index movements. The passive funds we utilise are structured to garner the specific returns available from an asset class, and retain the flexibility to make trading decisions that add value. This results in low portfolio turnover – often around 10% per annum – against the industry average of 92%, thus keeping trading costs to a real minimum. A full replication index fund can have portfolio turnover of some 30% per annum, meaning too much investor money is wasted on trading costs.

The cost of a round trade, i.e. selling a security and buying another to replace it, has been estimated at 2% for a large capitalisation stock, and a portfolio turnover rate of 92% would result in annual trading costs of 92% x 2% or 1.84% per annum, which would be in addition to the stated management fees and expenses.

Reviews, reporting and rebalancing

Under our investment management service, we monitor the performance and ongoing suitability of your portfolio so that you don’t have to. We implement any rebalancing when necessary to ensure your portfolio’s asset allocation remains in line with our recommendations. Rebalancing is a sound policy to promote a natural ‘buy low – sell high’ approach throughout all market conditions, as winning investments are trimmed and losing investments are topped up. This process provides much needed discipline, and ensures that you are not exposed to the dangers of style drift and the consequent increase in risk that afflicts completely passive portfolios or segregated portfolios that are hindered by capital gains tax concerns. At the outset we agree the reporting frequency that you require and the benchmarks that your portfolio will be judged against, all of which will be coordinated with any recommendations within your updated financial plan.

Ongoing research

We have invested considerable time and finance into developing our wealth management philosophy and proposition. Continued research is at the heart of the Collins Ward approach, as our investment philosophy evolves with ongoing developments in modern portfolio design. We remain committed to building portfolios that provide our clients with the peace of mind that they have a portfolio efficiently structured for the successful attainment of their personal goals and objectives.

Our lead fund managers – Dimensional Fund Advisors

Dimensional Fund Advisors (DFA) are experts in passive fund structuring and implementation. Their founders implemented the first index fund strategy in 1970 and they remain at the forefront of the asset management industry. They have unique relationships with leading financial economists and by acting as a conduit between scientists and practising investors, have pioneered both strategies and consulting approaches now taken for granted in the industry. Their funds ensure clients can tailor their portfolios with a range of highly engineered vehicles that will continue to evolve with developments in science.

An excellent example of their individual approach is that they do not structure funds on a commercial index basis, rather their funds aim to capture the return offered by the sector targeted, i.e. small company stocks. This strategy ensures they do not have to slavishly follow an arbitrary index, but can capture the capital market rate of return for the relevant asset class, without the costs associated with matching an index. Trading stocks is expensive, and Dimensional are world renowned for their trading expertise to reduce or even reverse the costs borne by traditional managers – savings which accrue directly to an investors bottom line. By being patient when others are pushing to transact and by being thrifty when others pay a premium, Dimensional provide real added value. In our opinion no other asset manager can currently match their proposition, but we continue to research the market and look forward to the day when other firms can provide competitive funds. We have no financial relationship with DFA and we utilise investments from across the marketplace.

Summary

“To invest successfully over a lifetime does not require a stratospheric IQ, unusual business insight, or inside information. What’s needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework.”

Warren Buffett – from the introduction to Benjamin Graham’s ‘The Intelligent Investor’

Collins Ward provides both the framework and the cool hand of reason to keep you from making emotional decisions that could have disastrous consequences for your wealth. If you would like to gain a fresh perspective on how to structure your investment portfolio efficiently, and to prevent mistakes which could seriously hamper your chances of meeting your financial and lifestyle goals, please contact our Managing Director, Christian Ward on 020 7073 2956 or via email at christian.ward@collinsward.com.

Note: This article is available as a .PDF document on our Resources page.