'The only investors that don’t need to diversify are those that are right 100% of the time ' – Sir John Templeton
Imagine you’re at a buffet. Most of the food on the table looks appetising – especially those vol-au-vents! – but you can’t taste something before you put it on your plate. Your reaction: diversify. A bit of this and a bit of that. Focused on what looks nicest, but not too one sided. Those pastry treats might not taste as good as they look!
The same principle applies to investing. A portfolio should look like a plate from a well-stocked buffet, not one that has just received the contents of a tin of beans. Variety won’t necessarily give you the best outcome, but it should offer good results and avoid the worst of disappointments.
Diversifying in investing means spreading money across investments in different regions, sectors and asset classes – so not to be overly reliant on certain ones. But how do you maximise potential while avoiding ‘di-worsifcation’, overly diluting strong returns with weaker ones? Or, to expand the buffet analogy, the snacks you wish you hadn’t added to your plate because they aren’t that great, or they are similar to something else. We think an active approach that considers the economic environment and seeks to maximise the opportunity while controlling risk works best.
This is the philosophy we apply to our multi asset funds, with our experts handpicking from different asset classes, regions and markets. Each fund in the range is designed to offer a diversified portfolio and meet a broad risk profile, with portfolios are reviewed on an ongoing basis and changes made in reaction to the evolving environment and new opportunities. Please note all investments can fall as well as rise in value.
While there are lots of multi asset funds from various providers to choose from they are not all created equal. There are several reasons why we believe ours have an edge in generating strong results for our investors over the longer term.
Broad diversification and no home bias
Our multi-asset funds offer true diversification – not just equities and bonds. We use carefully selected investments in areas such as infrastructure, property and absolute return strategies to complement these and provide opportunities that don’t exist in the realm of traditional investments. We are also truly global in our thinking, simply aiming to maximise returns as best we can. Some multi asset funds are highly concentrated in the UK – and their performance at times has suffered as a result – but our approach is geographically flexible as we don’t have any fixed or banded allocations to certain areas.
Dynamic blend of active and passive
At Charles Stanley we are proud of our independent thinking and flexibility. We are neither wedded to ‘active’ nor ‘passive’ strategies for fund choices in our underlying portfolios and can cherry pick the optimum strategy for our needs. Passive investments are designed to simply follow an index and can be significantly lower cost than active funds that try and beat the market. Presently, in our portfolios we are positioned about 60/40 passive to active, but we alter this ratio over time. If we think there are more inefficiencies for active managers to exploit, we allocate more towards active.
We are currently investing in active funds in Asian and Emerging Markets where we believe there is more opportunity for active managers to add value, whereas in developed markets we are more biased towards low cost passive funds outside some more thematic strategies. Specialist bond funds are also used for parts of the market where we think particular expertise is required. Finally, unlike many managers, we use investment trusts, which we believe can have several advantages. In particular, to access unique strategies in more esoteric asset classes, or areas where liquidity (the ease of buying and selling the underlying investment) is more problematic and is far better dealt with in a ‘closed ended’ structure of an investment trust.
Harnessing key themes
Having a broad, diverse portfolio doesn’t mean missing out on key investment themes. We seek to harness important structural trends while managing risk. For instance, the transition from fossil fuel to renewable sources of energy is a multi-decade phenomenon where capital will be reallocated on an unprecedented scale, creating investment opportunities across a multitude of sectors and industries. We presently hold Schroder Global Energy Transition Fund, which invests across the entire sustainable energy industry from production to end-use. We believe a selective, disciplined and active approach such as the one adopted by this fund is a sensible means of accessing an exciting area.
We are also aligned with the ongoing digital transformation of the economy through exposure to funds that follow the Nasdaq, the US technology index, as well as through active funds weighted towards technology and innovative healthcare such as Baillie Gifford Positive Change and Baillie Gifford Global Discovery.
An eye on the downside (and upside!)
We always build a ‘base case’ through our macro-economic research, but we are pragmatic, aware there will always be risks that this is wrong on either on the upside or the downside. Currently, our base case assumes a decent economic recovery accompanied by accommodative central banks and low interest rates, but we are also mindful of negative factors such as the pandemic worsening or central banks making an error. We have some hedging strategies in place, especially in our lower risk portfolios in recognition. We are also open to the possibility that inflation could be less of a problem than feared or a more widespread resolution to Covid takes place quicker than anticipated. Building different scenarios and establishing their likelihood helps us construct portfolios that appropriately balance opportunity and risk.
We believe that delivering value to investors is about providing high-quality investment solutions that help investors reach their financial goals – of which low costs are an important element. Financial markets are unpredictable, but cost is one thing investors can control and minimising it helps maximise returns. The annual management charge is just 0.30% across our multi asset range, which means the funds are great value versus many of our competitors that charge 0.7% or more.
How to use our ‘one-stop-shop’ funds
Our four multi asset funds offer investors a short cut to a balanced portfolio for investors who want a straightforward, low cost and comprehensive product – and to avoid the hassle of putting together, monitoring and rebalancing a portfolio of different individual components. They could also be used as a ‘core’ around which other investments can be added for those who want to be more ‘hands on’ for the remainder of their investments.
They can be purchased in an ISA, Junior ISA, SIPP or Investment Account with Charles Stanley Direct and more information can be found regarding their level of risk and what they invest in on our multi asset page. For more information on the individual funds, their performance and important documents are listed below:
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