Tailored Asset Management

Until recently, saving for retirement usually meant investing in the With Profits or Managed Funds (or sometimes the more specialist funds) offered by the chosen pension provider. With this comes a reliance on the insurance companies’ fund managers to provide a balanced approach to investment to suit our long term needs.

'Managed' Funds predominantly hold one asset class, namely, equities, often appropriate for the long term investor but, as recent experience has shown, not so for those with shorter term requirements, for example those nearing retirement. A Managed Fund cannot be tailored to suit an individual investor’s needs or changing circumstances – it provides the same underlying assets for the twenty year old and the sixty year old.

Historically, there have been few alternatives to this approach for the vast majority of private investors. However, at Charter, we believe that we have an alternative – Tailored Asset Management.

Over recent years, far greater emphasis has been placed on the importance of arriving at a properly constructed portfolio investing in different asset classes chosen specifically to match your investment objectives, in particular your attitude to “risk and reward” and the intended investment term.

Different types of assets, such as equities or bonds, behave in different ways. The first step in forming any investment strategy is to achieve the right balance between major asset classes. This “asset allocation” is fundamental to meeting our investment goals in the medium to long term. In fact, asset allocation can be more important than the choice of individual funds themselves.

Click here to view an example of Asset Allocation breakdown.

The principle of diversification is to reduce the overall risk and volatility of a portfolio by including a spread of different types of investments. The spread will be dependant upon an investor’s attitude to risk and timescale and is very specific and tailored to the individual.

We believe that it is paramount to achieve a balance between the allocation of funds to asset classes and your attitude to risk.

We also believe that, for this to be an effective “life time” approach to investment planning, it is vital that this allocation is regularly rebalanced to ensure that it remains tailored to your changing needs and circumstances. Our relationship with our clients is ongoing and a long term commitment.

We will also apply our technical expertise in choosing the most appropriate funds and investment houses within the asset classes and will advise on issues such as pensions regimes, retirement planning including Draw Down and tax planning including tax efficient investments and Inheritance Tax Planning.

If you would like to know more about this alternative approach, please click here for more detailed information or contact Barry Woolley or Deborah White on 01772 326800 or email us on tam@charter-partnership.co.uk.

Fund Selection - March 2009

Embedded within our Tailored Asset Management approach is the principle of Treating Customers Fairly. This requires us to provide a consistent approach to assessing clients’ investment objectives and attitude to risk, enabling us then to determine a suitable asset allocation and select appropriate investment funds within the various asset classes.

As past performance is no guarantee of future returns, looking at the historic performance (quantitative analysis) of a fund in isolation is inadequate research. We also use measures of rating funds which combine quantitative information, such as returns and volatility, with qualitative information, that is an assessment of a fund’s investment management capabilities.

Important note
Ratings are, of course, intended to offer a pointer towards funds that are worthy of further investigation. Past performance is not a guide to the future. The value of investments and the income from them may go down as well as up and are not guaranteed. You may not get back the amount originally invested.

If you would like to know more about our process and the ratings agencies used, please click here.

UK Equities sector
On 28th January 2009, Old Broad Street research downgraded the AXA Framlington Monthly Income and Equity Income funds, managed by George Luckcraft, from AAA to AA, commenting:

We acknowledge that Mr Luckcraft typically invests across the market cap spectrum, using his significant experience and knowledge of small caps to invest in stocks that provide higher growth prospects. Furthermore, he is very focused on the yield objectives of the funds. This approach has not been rewarded in the recent environment but we also note that the manager underestimated the scale of the recent financial and economic problems and given the funds’ structure, this also contributed to the decline in the funds’ performance profiles. We have now decided that AA Ratings are more appropriate for both funds when taking into account the extent and the duration of the underperformance, together with our revised level of conviction.

Having kept a watching brief on these funds for some time, we have decided that there are higher rated funds within the UK Equity sector which we believe have the potential for better returns over the longer term for our clients. The fund that we have chosen to replace the Monthly Income fund in our model portfolios is the M&G Recovery Fund.

The principle behind the fund is simple, but has proved highly effective over almost 40 years – it focuses on corporate rather than economic recovery. To achieve this, the fund manager, Tom Dobell (AA Citywire rated manager of the fund since 2000), scrutinises companies and identifies those he believes can recover regardless of economic conditions.

He works closely with company management and takes an active role in turning the business around, even influencing changes of management on occasion. He aims to ensure that the company has the potential to increase in value over time, once recognised by the wider market.

He is also supported by an equally hands-on corporate finance team with 50 years of experience, working closely to develop and maintain a constructive dialogue with the companies in which he invests.

Replacement Fund	Forsyth OBSR rating	Citywire Rating	Financial Express Crown Rating
M&G Recovery	AAA	AA

Within the UK equity sector, we now recommend six core funds, three Equity Income funds and three Growth funds. We continue to favour the Equity Income sector which has served our clients well over our 27 years in business. In the current uncertainties, there may indeed be dividend cuts to come, however with our three selected Equity Income funds currently yielding an average of 6.1% (Trustnet 5th March 2009), and benefiting from consistent long term management, we are weighting our UK Equity investment approximately two thirds in favour of the income funds. On our extended buy list, Neptune Income will replace Rathbone Income.

US Equities Sector
Of all the OBSR rated funds in the American and American Smaller Companies sectors, only one manager currently enjoys a Citywire rating, Jenny Jones of Schroder. The Schroder US Smaller Companies Fund is a core holding in our US Equities sector. We have decided to replace the Legg Mason US fund, which has been underperforming its sector for some time. Until October this was the only fund in its sector to enjoy a AAA OBSR rating, however it was then downgraded to AA.

Additionally, we have replaced the M&G American Fund (A rated) due to the fact that the fund manager, Aled Smith, has recently lost his Citywire rating.

The replacement funds are as follows:

Replacement Fund	Forsyth OBSR rating	Citywire Rating	Financial Express Crown Rating
Threadneedle American	AA
JP Morgan US	AA

European Equities Sector
The main change of fund within this sector has been decided not on the basis of ratings, but following the take over of New Star Asset Management by Henderson. While we understand that the New Star Property and Fixed Interest teams will remain after the merger, the future of some of the higher profile equity fund managers seems less certain. One such manager has already announced his departure and we would prefer to remove our clients from the European Fund, sooner rather than later even though the fund continues to enjoy a AAA rating from OBSR.

Additionally, although there have been no ratings changes we are also replacing Fidelity’s European fund. The two funds to make up our exposure to European Equities are:

Replacement Fund	Forsyth OBSR rating	Citywire Rating	Financial Express Crown Rating
Cazenove European	AA
Jupiter European	AAA	AA

Fixed Interest Sector
There are two alterations to our “Buy List” in the fixed interest sector. We have replaced Aegon’s Sterling Corporate Bond Fund with the Fidelity Moneybuilder Income Fund which was previously on our extended “Buy List” and for the more cautious investors with a higher exposure to the fixed interest sector, we have reintroduced M&G’s Strategic Corporate Bond Fund.

Replacement Fund	Forsyth OBSR rating	Citywire Rating	Financial Express Crown Rating
Fidelity Moneybuilder Income	AAA	AAA
M&G Strategic Corporate Bond	AA	AAA

Asset Allocation – sector weightings
There have been no changes to our current weightings between the various asset classes.

Any reference to the performance of any fund or index cannot be taken as a guide to future returns.
The value of investments, and the income they produce, can fall as well as rise, particularly in the short term.