2016 has proven to be a turbulent year with the UK choosing to leave the European Union, the rise of anti-establishment politics and unprecedented levels of geo-political turmoil. These macro factors have had a significant impact on market volatility and investment valuations, emphasising the need for careful risk management of client portfolios.
At FE Invest, our investment philosophy is built around managing and adjusting risk to deliver optimal returns for clients. Below we look at 5 key investment successes our robust methodology has offered:
NOT CALLING MARKETS – THE MERITS OF DIVERSIFICATION
1. BREXIT - PROOF: The FE Invest portfolios are well diversified using strategic asset allocation from the UK’s leading stochastic risk modeller – eValue. This has helped our portfolios remain resilient without the need for short-term, tactical moves when markets faced turmoil during Brexit.
2. GEOGRAPHICAL ALLOCATION: Post Brexit, the asset allocation of the portfolios were reviewed with a general trend to reduce UK equity exposure in favour of developed international equities. By carefully considering the geographic breakdown of the portfolios, the analysts were able to avoid concentration in specific regions like North America, which has been useful in the immediate aftermath of Trump’s election as US President.
3. EXPOSURE TO GILTS: After careful consideration of strategic bonds, TAR and cash - GILTS were chosen to provide long-term diversification benefits in line with eValue’s guidance. The portfolios’ GILT positioning was increased in tandem with international equities for a healthy offset. The FE house view holds that the bond bubble thesis has very low probability of occurrence.
ACTIVE RISK MANAGEMENT
4. LISTED PROPERTY Vs. PROPERTY: Due to the significant liquidity risk associated with investing in physical property funds, the FE Invest portfolios have never held options from this asset class. Liquidity risk cannot be assessed from past performance data and our portfolio building realises on precision & accuracy in data. These downsides are however minimised by investing in listed property funds.
5. STANDARD LIFE GARS: The headline making Standard Life GARS was removed from the portfolios earlier this year. Whilst the investment industry was suspicious of the size of the fund; our concerns were around the fund’s risk management processes.
The FE Invest proposition goes beyond portfolio management. As a model portfolio service, Invest offers ongoing governance and communication to Advisers to provide a comprehensive understanding of our investment decisions and keep the Adviser in the centre of the investment journey. FE also helps Advisers keep their clients informed – we are increasingly producing specialised, jargon free written and video content for your onward distribution to clients.