We maintain the asset allocation spread across six different risk profiles and operate within defined parameters. To gain exposure to each asset class we identify and select individual investment funds taking account of a diverse range of performance metrics, both quantitative and qualitative. Although we look for funds that are ’best in class’ in either their region or sector there may be periods when a fund’s short term performance has been disappointing but our analysis indicates its suitability for inclusion within a portfolio.

Our review process continually monitors if the objective of the individual portfolios is being met and this includes ensuring that the characteristics of each portfolio are aligned with the risk profile.

Volatility, as one measure of risk, is closely monitored for each portfolio and its underlying investment funds. If a portfolio displays a level of volatility outside of its expected range we investigate to determine if this reflects macro-factors or individual fund performance. We seek to identify any changes in an individual fund that could be detrimental to future performance. This process allows us to analyse the key attributes of our portfolios as well as determining the sources of performance. We also assess our performance against a number of benchmarks and indices, as well as our ranking against peer companies.

Investment Asset Classes (Glossary)

  • Cash

    Cash, in the form of deposits, is generally considered to be a safe investment with virtually no risk of capital loss. Moreover, it is a liquid and accessible asset although the investment return is dependent upon interest rates and, as such, only provides a ‘real’ return if the rate of interest accruing exceeds inflation.

  • Bonds

    An investment in a bond is effectively a loan given to the issuer of the bond. They are issued by supra-national agencies, governments, companies and other institutions as a means of raising money.

    In return for the investor providing the loan the borrower promises to pay interest normally annually or semi-annually until the maturity of the bond, which is usually at a pre-determined date. Bonds are usually redeemed at ‘par’ which is the face value of the bond. Bonds tend to pay a higher rate of interest than cash deposits reflecting the higher level of risk.

    ‘Sovereign bonds’ issued by governments (in the UK these are known as ‘gilts’) are regarded as carrying lower risk than ‘corporate bonds’ which are issued by companies. This risk refers to that of the borrower defaulting by not paying the interest payments due and/or not repaying the investor at maturity. Bonds are rated by a number of credit-rating agencies and the rating given is a measure of the level of creditworthiness of the issuer of the bond(s), be it a country or a company. An issuer with a poor rating indicating a lower level of creditworthiness will have to offer a higher rate of interest to attract investors. Bonds issued by lenders that have the lowest credit rating are known as ‘junk bonds’. Bonds with the highest credit rating are the most liquid and thereby the easiest to buy and sell.

    Bond prices generally reflect interest rates although they have an inverse relationship which means that bonds prices fall as interest rates rise and vice versa. In addition, prices are affected by the number of years left to maturity with longer dated bonds displaying more volatility than shorter dated bonds which are less sensitive to interest rate movements.

    Some bonds have fluctuating interest rates although the majority have fixed interest payments.

  • Equities

    An investment in the shares of a company entitles the holder to a share of the company profits in the form of a dividend payment. Shares are either privately held or publicly traded and normally dividend-paying companies are established, mature and profitable businesses.

    Over the long term the value of a company share reflects the success of the company as expressed by the value of the current and expected future dividend payments.

    Shares can be bought in companies of different sizes, maturities, sectors, regions and countries. Shares prices can fluctuate greatly and in the case of overseas shares are influenced by currency movements and exchange rates. The fluctuations in the values of shares means that they should be regarded as longer term investments. Historically shares are regarded as being riskier than bonds, but because company profits are not fixed and generally rise in-line with inflation, investing in equities can be a form of protecting your capital against the impact of inflation.

    Most shares are easily traded with shares in large, blue-chip companies having the greatest liquidity.

  • Alternatives

    Alternative investments are often included in portfolios because they can act as useful diversifiers. Investments in this category are outside those which fall into traditional asset classes, and the primary areas of investment are property, infrastructure, commodities and absolute return strategies. Other forms of alternative investment include land, forestry, works of art, antiques, stamps, wine as well as private equity and venture capital.

    The lack of correlation of some these assets with traditional asset classes can serve to reduce risk within a portfolio as well as providing the opportunity for attractive returns when other forms of investments are performing poorly. Some alternative investment can be complex as well as being less liquid than some other asset classes meaning that they can sometimes be more difficult to sell.

    Property: investment in commercial property provides exposure to a ‘tangible’ asset which entitles the investor to receive rental income as well as the opportunity for capital appreciation, both of which can be provide some protection from the impact of inflation. The primary drivers for the return achieved are supply and demand.

    The usual form of investment in ‘bricks and mortar’ is purchasing shares or units in a property fund or property trust and these can provide exposure to a diverse range of different types of property including residential, retail, commercial and industrial buildings. Property can be one of the least liquid investments because of the time that it can take to dispose of a building, although this can be improved by investing through a collective fund or trust. Investing in collective funds which invest in the shares of property companies can significantly increase liquidity but the volatility is more akin to that of equities, particularly over a shorter investment period.

    Historically, returns from property have been higher than cash and bonds but lower than equities.

    Infrastructure: this usually encompasses investment in buildings (hospitals, schools etc.) and transport (bridges, tunnels, roads, railways, and airports) in the form of a public private initiative where government and private enterprise come together to develop projects for the benefit of society. These investments are attractive because they generally offer high and growing income yields and are usually accessed through collective funds or trusts.

    Commodities: this area of investment is split into two types: hard and soft commodities. Hard commodities are typically natural resources that must be mined or extracted (gold, rubber, oil, etc.), whereas soft commodities are agricultural products or livestock (corn, wheat, coffee, sugar, soybeans, pork, etc.). The prices of commodities can exhibit significant volatility and investment using a collective fund helps to spread the risk.

    Absolute return strategies: the managers of these investments employ different strategies and sophisticated techniques to produce a positive return regardless of the direction and the fluctuations of capital markets. Hedge funds are one form of this type of alternative investment.