Investment Options

Active investments cover the type of investment most people are familiar with. If you choose an active fund manager you will rely on them to buy the right assets at the right time (and sell them at the right time).

Active managers all use different methods to select investments. Some use a “bottom up” approach where they select the individual companies which they think will perform best, whereas others use a “top down” approach where the choice about individual companies is considered less important than the choice between different countries and different industries. Many fund managers use both methods, so they choose the best country to invest in, then choose the best industry to invest in and then pick an individual company within that industry which they think can perform well.

Active managers also might want different things. Some fund managers try to grow the value of your investment by selecting investments whose price can rise in value. Other fund managers try to provide an income to investors (normally from share dividends, bond interest and property rental income) and they try to grow this income over time. Other fund managers use both methods, so they provide a combination of growth and income (this is called a “total return” approach to investing).

Active investments are the most popular way to invest in the UK. However their popularity has fallen in recent years, primarily due to competition from lower-cost passive investments (which are covered below). Active fund managers feel that investors should assess them based on the returns they provide to investors once their management fee has been deducted. Active fund managers also point to the fact that they can choose not to invest in certain areas whereas passive investments do not have this choice.

While there are different ways in which investments can be selected and managed, there are several core concepts which apply to all investments. They are:

• Minimising your tax burden – investments can be subject to tax and different investments can attract relief from taxes. If we minimise your tax burden it means you can keep more of the investment returns you make
• Diversification – we believe that investments should be diversified as widely as possible, within any constraints set by an investor. This is because diversification is the simplest way in which risk can be reduced without having too much impact on potential returns. Diversification can be achieved by spreading an investment across different types of asset, different investment managers and different industries.
• Asset allocation – we believe asset allocation can have a major impact on potential returns. For example, someone who is seeking the best possible long term investment returns is unlikely to invest in lower-risk government bonds or cash.
• Rebalancing – once you have decided upon an asset allocation it is important to make sure your investments don’t stray from this allocation over time. This can happen if one part of your investments makes higher returns than other parts of your investments, which means you are then more exposed to falls in the investments which have done well. Rebalancing your investments means you put your portfolio back into it’s original asset allocation.

Whether you are interested in active or passive investments(or a combination), we will always diversify your investments as much as possible (within any constraints we might face) and we will always ensure your asset allocation is suitable based on the amount of risk you can afford to take.