At Zen Wealth we don’t really talk about investment performance and there are reasons for this. We have a long-held belief that trying to beat markets or make judgement calls is the quickest way to be on the receiving end of a big loss.
Instead, we believe that building a portfolio which is robust, well-structured and appropriate for the level of risk you are willing to take is far more important. However, this is not to say that we don’t research our portfolios, test our portfolios and review their progress. Where we identify the need for change we make it.
With the World Cup in full swing and the nation feeling a wave of optimism we thought we would give you some insight into our processes and some idea of our results.
Portfolio Construction is like putting together a great team. You don’t always need star names littering the field to provide great results.
How often as an England fan, blessed with the Golden Generation did we end up on the wrong end of results? We believe that building the right team and foundations is the best route for success. We blend together assets to form a solid team which will each contribute to the overall performance.
Our portfolio consists of 11 different investment types and I want to talk about these in the context of our advice process and how they link to your overall solution.
Cash
Think of cash as your last line of defence, it’s there really to act as the role of goalkeeper, it is there to meet your day to day living costs and should anything go wrong it’s there as a backup.
Global Bonds and Gilts
Our allocation to Global Bonds and Gilts, tends to be at the higher quality, shorter duration end of the market, we want our centre backs to be robust, to make few mistakes and to build a solid foundation for the team. They are probably not going to set the world alight in terms of performance, but they will form the base to allow other assets to perform.
Inflation Linked and Investment Grade
To use a football analogy, the full backs have the licence to push on. We expect that they will have more volatility, but we also expect that as we give them greater freedom they also contribute to the performance of the portfolio.
Strategic Bonds
This is a recent addition to the portfolio. The investment committee wanted something which could help us navigate through what we thought would be a difficult period. We feel that Bonds in general are overpriced and we felt that the portfolio could benefit from someone screening the sector and being a little bit choosier around the investments they hold. Again, we are focusing on quality rather than quantity. We expect this asset class to contribute to the performance, but what we really want, is for the managers to avoid the bad decisions, we are looking at them reducing the potential losses on the portfolio.
Property
We prefer to invest in bricks and mortar rather than try to capture return through investing in property companies. Like a midfield general Property should add stability to the portfolio by providing a consistent income stream. We focus on UK property to provide some hedge against inflation as our clients are primarily UK based investors.
Developed Equities
Whilst equities can be volatile, we look to allocate across the Globe. The developed equity proportion of our portfolios provide the foundation for growth. Whilst Property and Strategic Bonds provide the midfield stability, Developed Equities will provide the quality without taking significant risk.
Small Companies and Value Stocks
Academic research suggests that these two factors will, over the longer term, deliver additional return. They will, on occasion, exhibit more risk, but tilting the portfolio in favour of these types of investments should enhance return. Think of them as the Messi and Ronaldo of investment theory. They can be volatile, but when given the freedom to express themselves they can almost single handily win you the game.
Emerging Markets
Every good side needs the spark and fearlessness of youth and Emerging Markets captures this analogy almost perfectly. They are by no means the finished article and your taking risks in putting them in the team. However, the potential upside, should favour the additional risks you take. Because it is a risk, we temper this enthusiasm by only allocating small proportions of the portfolio to these types of investment.
So how has our team performed. Well we looked at a range of balanced investments as well as the sector average of the Mixed Investment Sector 40-85% shares, which are targeted to the same level of risk as our own balanced portfolio, you should note, that we have simulated the performance of our portfolio to provide performance over a longer time horizon. You should also know that past performance does not guarantee future performance.
We are pleased with the results, however, the growth achieved only tells one half of the story, as with all investing there are risks, our mandate is focused much more around risk, therefore we looked at how the risk and return of the different investments compared to the sector over the past four years. We think the output speaks for itself.
Please note that this or any part of it does not constitute advice. You should always seek professional advice before acting on it.
All data is sourced using Financial Express Analytics and cannot be relied upon.