Asset Allocation

So, what do we mean by Asset Allocation and why is it important?

Broadly speaking there are four key asset classes into which one can invest: cash, bonds, equities and property. There are many sub–divisions within these classes but, they represent the four main groups.

Your money will be diversified across these classes to try and obtain the best possible investment returns, in line with your personal expectations and attitude to risk. Sound investing is less about having a knee-jerk reaction to market changes and rather more about sticking to underlying investment principles. We believe well-constructed portfolios are best placed to weather storms and capture positive returns when markets pick up. Underpinning this strategy is the basic principle of not placing all one’s eggs into a single basket.

The first question many advisers ask themselves when they begin investing a client’s money is “Which fund should I choose? “. However, the consensus amongst experts is that getting the right asset allocation (rather than concentrating on individual fund choices) is more important, in terms of maximising long term performance. In fact, research has proven that more than 90% of investment performance comes from sound Asset Allocation.

Fixed Interest

This includes bonds and gilt-edged securities, such as those issued by the British Government. Gilts offer a good diversification from equities, although returns are generally more modest. Corporate bonds (issued by companies) are considered slightly riskier than gilts but, they also offer a potential for greater return and furthermore, they are negatively correlated with equities.

UK Equities

These have historically provided high returns over the medium to long term. However, they are quite volatile over short periods and a degree f uncertainty about future price movements makes them a slightly riskier investment than some other asset classes.

US Equities

These present a more diversified portfolio than UK equities. Exposure to the world`s largest economy can offer the prospect of higher returns but, with a higher level of risk, given these funds are also subject to the movements in currency exchange rates. This can lead to above average short-term price fluctuations.

European Equities

Not totally correlated to UK markets and therefore, providing further diversification within your portfolio. Exposure to some of the smaller, emerging markets can offer the prospect of enhanced returns but, once again, with a higher level of risk than UK equities. Also affected by movements in currency exchange rates.

Far East Equities

The opportunity for exposure to emerging markets which have, historically, experienced dramatic price movements and rapid growth. These economies provide potential for higher returns but, there is a corresponding level of risk and the presence of short-term price volatility.

The Specialist Sector

The funds in this sector can invest in areas not currently covered within the asset allocation model and provide further potential for higher returns, although more volatility. These funds may include emerging economies and investment into specific commodities, such as oil and other natural resources.

Property Funds

Property Funds provide further diversification away from equities and contribute to the overall asset allocation of many portfolios.

There is no absolute guarantee regarding how any of these asset classes will perform in the future. You should always retain some liquid funds in a deposit account, which may be held within your portfolio of course.

We can now move on to explain how we expose your portfolio to the benefits of Asset Allocation and how we set the best possible risk and return balance to match your personal requirement.

Initial Report

When we review a client’s investments we frequently discover they include a ‘mixed bag’ of financial products which have been acquired over an extended period of time… often in response to a salesman, an advertisement, or a particular life event. For example, the purchase of a house, a response to changes in taxation, setting up of a business, or joining an employer pension scheme.

Most of us very rarely take the opportunity to properly scrutinise our financial affairs, to ensure that decisions we made in the past have actually achieved what was originally intended. Furthermore, the product details frequently contain language which can confuse, without any satisfactory way of asking questions.

Financial Review
The Integra process really begins here by reviewing all the financial products in your portfolio. We obtain up-to-date valuations from the companies you currently have products with and establish your attitude to risk, along with your long term financial objectives.
Asset Allocation
Our next step is to determine an appropriate Asset Allocation. The information gathered from the various companies is carefully assessed and using a variety of sophisticated investment instruments we begin to construct your portfolio. Together with our investment team we produce your recommended Asset Allocation, with a co-ordinated investment strategy which is designed to meet your investment objectives.
Asset Classes
Next we need to find appropriate funds to match the Asset Classes and this fund selection process takes note of the following:

  • Your current situation, attitude towards risk, investment objectives and timescales.
  • The recommended Asset Allocation and how it was calculated.
  • Fund charges.
  • Individual fact sheets for all the recommended funds.
Review client holdings (ISAs , shares, pension, cash, etc).
A collated cash equivalent value is entered into the Portfolio Planner.
The appropriate Asset Allocation is produced.