How we select and monitor funds for our clients
Stock markets are constantly moving up and down and certain funds perform better than others. There are literally thousands to choose from, so how do we select funds and adapt portfolios to suit our clients' needs and changing market conditions?
Tony Davies explains the art and science of selecting and monitoring funds and how as a company we select 'Favoured Funds'.
"We use numerous sources of information to arrive at our list of 'Favoured Funds'. We subscribe to a computer based system which provides massive amounts of data on all collectives (i.e. funds) registered in the UK and offshore. We receive investment analysis and commentary from a wide range of fund providers, fund managers and stockbrokers.
When we understand the strategy a fund manager is taking we get a better feel for which ones to trust with our clients' money. Therefore, we gain a lot of valuable information by joining investment conferences to hear what key fund managers are currently thinking about their funds and the markets. I am lucky to have been involved in investment advice for so long that I am on first name terms with a number of fund managers who are able to openly share their views and predictions with me.
Emma our head Paraplanner assists with the statistical analysis of the research process we adopt and the other advisers also provide input. Amanda, for example is particularly interested in Ethical investments and keeps us up to speed on latest trends and opportunities. Simon takes a keen interest in the markets and new funds to consider for our portfolios."
Our investment selection and monitoring process
For each sector, (e.g. UK Equity Income or Balanced Growth) we set specific relevant criteria to compare funds by. Criteria may include volatility, quartile rankings over different time periods, sustainability of yield, size of yield, scatter graphs to measure reward against risk, management tenure and various third party rankings. Few funds are able to sustain good performance so we generally seek those with more consistency. The software applies the criteria, to filter out the majority of funds, leaving us with a narrower range to explore much further.
We then meet the fund manager, watch presentations, attend tele-conferences and undertake in-depth fund research. We may also consider specific funds that do not meet the criteria in step 1. For example, a new fund which doesn't have the past performance statistics, but where we know the fund manager has an excellent track record and/or the fund strategy is well placed in the current climate.
After this analysis we arrive at what we call our 'Favoured Funds List'. When a client has new money to invest, we select funds from this list, unless there are particular reasons to justify an alternative (for example if a client wanted exposure to a specialist high risk fund say in South Korea, because they had knowledge of that area.)
When constructing new portfolios, adding additional investments to existing portfolios or reviewing existing portfolios, we refer to the sector allocation created by APCIMS (Association of Private Clients and Investment Managers and Stockbrokers) for Balanced, Income and Growth objectives. This helps us to decide the appropriate asset allocation to meet client objectives and risk profile.
We check the attitude to investment risk and investment objectives of our clients at regular timed intervals.
We ensure that any new investments, when combined with existing ones, achieve an appropriate mix for the client. In some cases we may have to recommend switching out of an existing fund because it's underperforming, or it's no longer compatible with the objectives of the client.
Ongoing investment monitoring
"We repeat the whole process for selecting 'Favoured Funds' three times a year in order to keep our list current and appropriate. We also hear about changes in the markets on a daily basis. If a fund becomes of concern to us, for whatever reason, we add it to our "Watch list". We will then monitor it closely. We may decide to contact clients (at the touch of a button, we are able to identify all the clients who are investing in that particular fund - through our specialist back office administration systems) *to discuss the fund with them urgently, although what is more likely is that it would be discussed at their next scheduled review because it's rare for a fund to change so much that it suddenly is no longer appropriate.
Overall, we feel this strategy provides a comprehensive approach that allows us to use our extensive experience to analyse a great deal of information and assimilate all of this data into a robust process of portfolio construction and reviews. This means that client investments are and stay appropriate and relevant to meeting their aims and objectives."
*NB: This investment monitoring service is only available for client's funds where we act as their agent. If you hold funds, not under our agency (perhaps bought via a bank) and would now like to benefit from our ongoing monitoring, please get in touch to discuss the alternative options.
Other research we conduct
We use specialist software to compare the charges and features of the vast range of all financial products including Mortgages, Pensions, Life Policies, Critical Illness and Income Protection Products. We compare the rates for all kind of Annuities and Term Assurance. We can also check interest rates for Cash ISAs and savings accounts to make sure that we get the best deals for you. We couple this technical analysis with attendance of provider seminars, technical workshops and general research, and combine all this with our knowledge and experience to create appropriate solutions and reviews for our clients.
Whilst we are held responsible for our own compliance with regard to all the rules and regulations of the FSA and legislation generally, we also employ the services of an independent external compliance company.This is to make completely sure we are fully up to date with any changes within the regulations and that we secure independent validation of our compliance procedures, documentation and training. We feel this also gives our clients an extra level of reassurance.