Time to give your investment a mid-year review – but mind the price tag

02 July 2013

As we pass the mid-year point for 2013 and markets have started adjusting to a potential tapering down of Quantitative Easing (QE), Bestinvest believes now could be the right time for investors to step back and review their portfolios. Yet Bestinvest also warns that “RDR” rule changes implemented six months ago could mean that a review from your adviser now carries a potentially hefty price tag.

Jason Hollands, Managing Director of Bestinvest, commented: “If you invest in funds, investment trusts or individual stocks and bonds, it is vital to keep an eye on your portfolio. Even one carefully planned at the outset will drift over time as each individual investment held and allocation to a particular asset class will grow at a different pace, or even decline. This means the structure of your portfolio could potentially take on very different risk characteristics to those originally intended.”

Four strategic cornerstones of a robust portfolio
Bestinvest argues that once an investor has reaffirmed their goals – income, growth or a combination of both – attitude to risk and time horizon, they should analyse the strategic positioning of their portfolio at least annually on four key metrics. These are:

    • Asset Allocation: academic research indicates that asset allocation - the mix of shares, bonds, cash, property, etc. - accounts for over 90% of the differences in returns between portfolios. Yet awareness of the importance of asset allocation is poor and too often investors focus exclusively on fund selection without first determining the right asset mix.


    • Exposure to Risk: investors are often unaware of how much risk they are exposed to across their portfolio which can get layered upwards with each new fund purchase. A starting point to assess risk is the level of volatility, i.e. price fluctuations, that a portfolio is exposed to.


  • Quality of Holdings: as Bestinvest has highlighted over many years through its Spot the Dog report, many investment funds fail to deliver satisfactory returns. It is important to intercept factors that may impact future returns early on, such as a change of manager, and assess the case for continuing to stick with the investment or move elsewhere.

  • Costs:while costs are not the most important factor in managing a portfolio, they are a drag on future returns that can be modelled with a degree of certainty. To justify investing in funds with above average fees, investors need to have a high level of confidence that they are with managers with the skills to outperform.

Tactical considerations
While investors should principally focus on the long term positioning of their portfolio, a mid-year portfolio appraisal is also an opportunity to make tactical adjustments to a portfolio to reflect the medium term outlook for different markets. Bestinvest highlights a number of themes:

    • Fixed Income: Bestinvest believes government bonds, investment grade bonds and index linked bonds are susceptible to changing market expectations around a potential wind-down of central bank stimulus measures and that investors might consider shifting their fixed income exposure into strategic bonds funds such as Legal & General Dynamic Bond, Kames Strategic Bond or TwentyFour Dynamic Bond, each of which has a flexible mandate and a tool kit to manage risk. Alternatively Bestinvest prefers fixed income funds focused on short-dated high yield bonds such as AXA US Short Duration High Yield.

    • China: Bestinvest expects deceleration in China’s rate of growth and is cautious on the market. Investors might consider global emerging market funds which are underweight China, such as First State Global Emerging Market Leaders, and suggests being underweight commodity funds as China has been a key driver of raw material prices.


  • UK Equities: the UK FTSE 100 Index has sizeable exposure to commodity companies. Bestinvest prefers funds which are prepared to invest right across the market cap spectrum such as Liontrust Special Situations.

  • Opportunities in Europe and Japan: Bestinvest’s preferred equities markets include European large caps on valuation grounds (Threadneedle European Select) and Japan based on the improved outlook arising from reforms (GLG Japan Core Alpha).
  • US equities: continue to perform well but the market has a premium rating, so Bestinvest prefers funds with a bias towards companies that the managers believe are undervalued, highlighting the GAM Star GAMCO US Equity as a five-star choice.

Don’t want to pay for a review?
Historically many investors will have turned to their financial adviser for a periodic portfolio review. With the replacement of commission-based advice at the start of the year, requesting an appraisal could now come with a potentially hefty fee attached, and some clients may discover they have been quietly dropped as some high street banks have pulled out of the advice market for all but the wealthiest investors.

To help investors self-appraise their portfolio Bestinvest offers a Free Investment Report Service & Tool (FIRST) which will provide analyse their investments on a non-advised basis. The service covers over 11,000 underlying investments and will generate analysis on a portfolio’s exposure to risk, asset allocation, the holdings and costs. Investors can either complete an assessment online at www.bestinvest.co.uk/first or ask Bestinvest to provide a paper based report by calling 020 7189 2454.

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Important information
The value of your investments and the income from them can go down as well as up, and you can get back less than you originally invested. Past performance or any yields quoted should not be considered reliable indicators of future returns.

Different funds carry varying levels of risk depending on the geographical region and industry sector in which they invest. You should make yourself aware of these specific risks prior to investing.

Bonds issued by major governments and companies will be more stable that those issued by emerging markets or smaller corporate issuers; in the event of an issuer experiencing financial difficulty, there may be a risk to some or all of the capital invested. Please note that historical or current yields should not be considered reliable indicator of future performance.

Underlying investments generally less well regulated than the UK. There is an increased chance of political and economic instability with less reliable custody, dealing and settlement arrangements. The market(s) can be less liquid. If a fund investing in markets is affected by currency exchange rates, the investment could both increase or decrease. These investments therefore carry more risk

About Bestinvest:
Founded in 1986, Bestinvest was a pioneer of helping clients reduce the costs of investing through discounting commissions. Today Bestinvest has grown into a leading private client adviser which helps over 50,000 investors. Bestinvest offers a range of services including guidance, investment advice, financial planning and discretionary portfolio management all of which are underpinned by a commitment to rigorous investment research. Through its low cost Select service, Bestinvest offers execution-only investors a Self-Invested Personal Pension Plan (SIPP), Individual Savings Account (ISA), Junior ISA (JISA) and Investment Account with access to more than 2,000 funds as well as investment trusts, shares and Exchange Traded Funds. Bestinvest has won numerous awards including ‘Self-Select ISA Provider of the Year 2011’ and ‘UK Wealth Manager of the Year 2011’ as voted by readers of the Investors Chronicle and Financial Times and Investment Adviser of the Year 2012 at the Professional Adviser Awards. Headquartered in Mayfair, London, Bestinvest has 14 regional offices with 200 staff servicing clients with over £4 billion of assets.

About Tilney

Tilney is a leading investment and financial planning group that builds on a heritage of more than 180 years.  Our clients are private investors, charities and professional intermediaries who trust us with over £23 billion of their assets. We offer a range of services including financial planning, investment management and advice and, through our Bestinvest service, a leading online platform for those who prefer to manage their own investments.

We have won numerous awards. Tilney has been awarded Best Conventional Advisory Service at the 2018 City of London Wealth Management Awards, Best Advisory Service in the 2015 City of London Wealth Management Awards; Investment Award – Cautious category in the Private Asset Management Awards; and Stockbroker of the Year, Execution-only Stockbroker of the Year and Self-select ISA Provider of the Year 2015, as voted by readers of the Financial Times and Investors Chronicle. Bestinvest was voted Best SIPP Provider and Best Fund Platform at the 2017 City of London Wealth Management Awards, Best Direct SIPP Provider at the YourMoney.com Awards 2017, Best Stocks & Shares ISA Provider at the 2017 Shares Awards, as well as Best Self Select ISA Provider, Best Online/Execution-only Stockbroker and Best Investment Platform 2017 at the FT and Investors Chronicle Investment and Wealth Management Awards, as voted by readers of the FT and Investors Chronicle.

Headquartered in Mayfair, London, the Tilney Group employs over 1,000 staff across our network of 30 offices, enabling us to support clients with a local service throughout the UK.