Portfolio objectives and risk
Key to successful long term investment management is the setting of appropriate portfolio objectives and a clear understanding of acceptable risk. GBIM takes great care to discuss these with new clients and their advisers and takes into account all aspects of a client's investment objectives and financial situation. Often, after the initial discussions, a recommended 'scheme' is presented illustrating the type of investments we feel would be suitable for a client's portfolio before any investment is made. In this way everyone can be comfortable that all questions have been addressed before any financial commitment is made.
Portfolio objectives
Portfolio objectives are broken down into six categories:
Growth portfolios are designed for capital growth and are suitable for those who have no immediate requirement to draw an income, although income is often generated. They are principally equities based, including in overseas markets, and therefore are categorised as very high risk.
Balanced Growth strategies are similar to those of Growth but with a lower exposure to equities and a higher exposure to other asset classes such as fixed interest and alternative investments.They are categorised as high risk.
Balanced portfolios are a balance between growth and income. They may be a suitable choice where there is a requirement to draw income from the portfolio but clients wish to maintain good prospects for future capital and income growth. We categorise them as average risk.
Balanced Income portfolios are similar to Balanced but with a spread of assets that is more biased towards income than growth, and with a lower proportion to equities. They are also categorised as average risk.
High Income strategies invest principally in income generating assets including fixed interest, equities and property. They are suitable for those seeking to draw a relatively high income from their portfolio. It should be appreciated that there is likely to be less scope for capital and income growth when compared with Balanced or Growth portfolios.They are categorised as low risk.
Capital Preservation portfolios seek to maintain capital value over the medium term while producing a stable total return which is higher than cash. Portfolios are invested across a diversified range of mainly lower-risk asset classes including fixed interest and alternative investments. The risk level of these portfolios is categorised as low.
|
Investment Objective |
Typical Asset Allocation* |
Benchmark |
|
|
Growth |
Fixed Interest |
0% - 20% |
APCIMS Growth |
|
UK Equity |
40% - 65% |
||
|
Int'l Equity |
10% - 40% |
||
|
Alternatives |
0% - 30% |
||
|
Balanced Growth |
Fixed Interest |
5% - 40% |
APCIMS Growth 50% |
|
UK Equity |
30% - 60% |
||
|
Int'l Equity |
10% - 40% |
||
|
Alternatives |
5% - 30% |
||
|
Balanced |
Fixed Interest |
10% - 50% |
APCIMS Balanced |
|
UK Equity |
30% - 60% |
||
|
Int'l Equity |
10% - 30% |
||
|
Alternatives |
5% - 30% |
||
|
Balanced Income |
Fixed Interest |
15% - 60% |
APCIMS Balanced 50% |
|
UK Equity |
30% - 50% |
||
|
Int'l Equity |
10% - 30% |
||
|
Alternatives |
5% - 15% |
||
|
High Income |
Fixed Interest |
30% - 70% |
APCIMS Income |
|
UK Equity |
15% - 45% |
||
|
Int'l Equity |
0% - 20% |
||
|
Alternatives |
5% - 30% |
||
|
Capital Preservation |
Fixed Interest |
20% - 80% |
1m LIBID 50% |
|
UK Equity |
0% - 30% |
||
|
Int'l Equity |
0% - 30% |
||
|
Alternatives |
10% - 70% |
||
*The above table of Typical Asset Allocations is indicative only and may vary as the market circumstances and client risk profiles change. Precise allocations will depend on current market
strategy and solutions will be tailored to individual clients' circumstances. An allocation to cash will normally be part of all portfolios and this can go to 100%.
GBIM points out that the value of investments and the income from them can go down as well as up, and investors may not get back the full amount originally invested.
GBIM firmly believes that clients should have unique, bespoke portfolios managed in line with their specific aims and objectives. Circumstances change and portfolios should be flexible so that they can adapt to evolving requirements.
A core principle of GBIM is to have risks and opportunities diversified. As such, unlike many firms, we avoid 'one size fits all' solutions.
We believe that, as we are entrusted by clients to manage their investments, we should have conviction in our decisions and so we are benchmark aware rather than benchmark constrained. We provide clients, for comparative purposes, with the relevant APCIMS or composite indices as indicative benchmarks for the chosen portfolio. However, we do not take positions relative to these indices, and may have zero exposure to certain asset classes within the index. Our aim is to deliver consistent, long-term, performance rather than merely seeking to perform in one market direction.
Portfolio risk
GBIM believes that risk is a measure of the volatility of expected returns and recognises the importance of diversification - by asset class, sector and geographical region, and across fund managers and counterparties - in seeking to reduce risk. Lower risk portfolios can contain a limited amount of what might be considered 'higher risk' investments and vice versa. It is the overall balance of a portfolio which determines its risk and which should reflect individual circumstances and risk tolerance. Other known assets and liabilities should be taken into account, as well as the portfolio's objective.
The definition of 'risk' can be subjective and it is important to discuss this in detail with the client together with their adviser as part of the take-on process and periodically thereafter.
Client objectives and risk profiles will be reviewed and updated at least annually.
Investment process
1. Define asset mix by understanding the client’s circumstances, objectives, time horizons and risk tolerances
2. Allocate portfolio to asset classes, markets and investment styles.
3. Identify, analyse and monitor suitable investments
4. Select and subsequently review investments, taking account of client-specific issues