Don’t put all your eggs in one basket

I recently read a very interesting article in FT Adviser by William Buckhurst, head of fund research and the investment director At Vermeer Partners. He wrote ‘medium-sized portfolios are often the least well served in the industry. They are too big to just invest in tracker funds and they are often too small to allow very significant diversification.

In markets where bond and equity indices are high, where there is an obvious chance that future returns could be lower, it is possible that the medium-sized investor might lose out if they follow the herd and keep their money safe in tracker funds. Luckily there is a solution to this.

The key is to adopt an active investment strategy that spreads investments across the broadest range of sectors/geographies/products/asset classes and, crucially, caters for a wider degree of potential outcomes while not diversifying away the potential for outperformance’. 

The sort of investment vehicle described is a Managed Portfolio Service, such as our own Wealthlineinvest range.

He goes on to say ‘even when there have been bumps along the road, the corresponding stock market fall-out has been relatively short lived – March 2020 was an extreme example of this. 

In an environment where we saw a long and drawn-out economic slowdown, an exposure to other asset classes would benefit, or at least help protect, clients. Yet global equities remain the beating heart of any portfolio.

He believes that asset diversity is key, ‘an allocation to lower risk and less correlated asset classes such as infrastructure, precious metals and fixed interest, caters for the unexpected’.

As well as asset diversity a mix of investment styles can also be important. Buckhurst says ‘’style’ diversification is equally important. An investor can be happy with the overall level of equities in his or her portfolio but can find the style mix within that is overly skewed towards a certain outcome’.

If an investment manager only selects assets for his portfolio based on once set of criteria or assumptions then there will be no balance in the portfolio.

A good way of avoiding these sorts of pitfalls is to invest in a portfolio with a range and mix of underlying funds with different fund managers in different parts of the world with different investment styles.

Brooks Wealth (with our partners LGT Vestra) offer a range of Managed Portfolios that cater for investment opportunities from Defensive, Cautious, Balanced, Growth and Adventurous viewpoints.

Miles Green, Practice Manager, Brooks Wealth Management.

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