Investment options

We recognise that different investors want different investment options. As a result we offer access to various types of investments including active, passive and ethical funds

Overview

Different investments for different investors

Most investors will hold money in a combination of different asset classes such as shares, bonds, government bonds, cash and property. Some investors will also hold alternative investments such as commodities (including precious metals and oil) and infrastructure.

The choice of which type of asset class to invest in is heavily determined by the amount of risk an investor is willing to take. For example, someone who wants to minimise risk would normally consider lower-risk government bonds and cash rather than higher risk shares and property.

Once the correct level of risk is agreed, investors still have plenty of choice regarding what type of investment they want to hold. This choice will depend on their outlook and their opinions about investments. We recognise that everyone is different and we offer investments which should cater for everyone’s needs. The three key options available to investors are passive investments, active investments and ethical investments and all three are explained here.

Main investment types

Active investments

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.

Passive investments

Passive investments have existed for a long time but their popularity has increased substantially in recent years. They are also known as tracker investments and index investments. Passive investments employ fund managers, but these fund managers do not spend their days selecting which investments the fund should buy or sell based on their opinions about how financial markets will perform.

Instead passive investments try to mirror an “index” as closely as possible. An index is a collection of different underlying investments and these underlying investments are selected based on a common trait (normally the size of the underlying asset). The most widely known index in the UK is the FTSE 100 index. This index includes the shares of the 100 biggest companies in the UK. If a company gets too small it might drop out of the FTSE 100 index and it will be replaced by the company which was the 101st biggest company in the UK.

Passive funds which are based on the FTSE 100 try to replicate this index as closely as possible. They normally do this by buying the shares of all 100 companies in the FTSE 100 index. However this is not a one-time decision because the share prices of these companies change throughout the day, so passive funds must constantly alter their holdings to ensure they do not stray too far from the underlying index.

The main benefit of passive investments is they cost less than active investments. Proponents of passive investments point out that active investments might outperform passive investments in some periods but then underperform them in others, and in both instances an investor will pay higher fees to invest in an active investment. Over a lot of years this difference in fees adds up and it means that if an active investment has failed to outperform a similar passive investment regularly the difference in growth might be less than the difference in charges.

While it is technically possible to invest in all types of asset through passive investments, some are more suited than others. For example investing in shares through a passive investment is far more common than investing in property or infrastructure through a passive investment.

 

Other considerations

Ethical investments

Most of the investments we recommend are not ethical investments. However, if one of our clients is interested in this type of investment, we have investment options available.

There are two broad subcategories of this investment concept, which are:

  1. Negative screening This is the most commonly known type of Ethical investing. Fund managers who take a “negative” screening stance will not invest in companies which they feel have an overall negative impact on the world. The most common sectors they will exclude are firms which deal in: alcohol, gambling, arms manufacturing or tobacco.
  2. Positive screening This is even more strict than negative screening. Fund managers who take a “positive” screening stance will only invest in companies which exhibit signs of positive corporate responsibility and try to bring an overall improvement to the world. This could include companies which attempt to improve the environment.

Our company can offer access to portfolios of Funds (Unit Trusts or OEICs) which invest in a range of shares and/or bonds with an Ethical stance. Each ethical fund we recommend is regulated by the Financial Conduct Authority (FCA) and can be included in an ISA, a personal pension or a standard investment account.

If you are not interested in ethical investments after speaking to a financial adviser we also offer a wide range of other investment services which do not have an Ethical screening process in place.

Our core investment philosophy

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, passive or ethical 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.

Our fees

We offer a free, no obligation, initial meeting. This gives you an opportunity to find out more about our company and to get to know your adviser.

After your initial meeting your adviser will set out how we can help you and what fees will be payable for our services. If you choose not to use our services no fees will be payable.

We set different fees for different types of work, which is explained in more detail on the link below.

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