Whilst Brunel Wealth Management manages its own portfolios, Quartet provides the research and fund selection resource to Brunel. Colin sits on the Brunel Wealth Management Investment Committee that oversees all investment decisions made as we construct our and our clients’ investment portfolios. Other members of the Brunel Wealth Management Investment Committee include Steve Brady, Brunel Director; Dan Hiles, Brunel Chartered Financial Planner; and Andrew Weston, Brunel Compliance & Technical Manager.
Here Colin talks about the Brunel Investment Strategy. Described as ‘systematic, globally diversified & low cost’, it is also an investment style that can be described as ‘passive’ rather than ‘active’. But passive doesn’t mean in-active.
It’s an investment strategy that:
A passive investment strategy:
Brunel takes the approach that the starting position in its core satellite portfolios is a passive position and that only if there is a compelling argument for an active fund over a passive one will it be included.
Over a recent 10-year period, active mutual fund managers’ returns trailed passive funds consistently
This is according to Kent Smetters, a Professor of Business Economics at Wharton Business School, Pennsylvania. Managers of stock funds for large- and mid-sized companies produced lower returns than their index competitors 97% of the time, while managers of small-cap stocks trailed 77% of the time.
Those very few investment managers that outperformed the passive index were still likely to underperform in the future. In fact, outperformers had only a 20% chance of repeating the following year, and … just a 10% chance of outperforming three years in a row.
It’s just too hard for an asset manager to pick a portfolio that outperforms the market by enough to make up for the 1, 2 or 3% fee that must be charged to support the stock and bond picking operation.
Many index-style mutual funds and exchange-traded funds charge less than 0.2%, some less than 0.1%, giving them a huge cost advantage.
Most investors are not good at predicting short-term swings in the market. More often than not, investors find themselves buying high and selling low.
When the market starts selling off sharply, investors will panic, sell their own shares, and sit on the sidelines.
Unfortunately, some of the biggest one-day upswings in the market occur during these volatile periods. For instance, if an investor stayed fully invested in the S&P 500 from 1993 to 2013, they would’ve had a 9.2% annualised return.
However, if trading resulted in them missing just the ten best days during that same period, then those annualized returns would collapse to 5.4%!
Portfolio diversification plays a key role in passive investing and is a widely embraced investment strategy that helps mitigate the unpredictability of markets for investors. It has the key benefits of reducing portfolio loss and volatility and is especially important during times of increased uncertainty.
Modern Portfolio Theory, provides the academic bedrock for diversifying portfolios. Simply stated, by combining assets that are not perfectly correlated, that is, do not move in perfect lock-step together, the risks embedded in a portfolio are lowered and higher risk-adjusted returns can be achieved. The lower the correlation between assets, the greater the reduction in risk that can be derived.
Colin has over 18 years’ investment management experience and founded Quartet in 2009. Before this Colin was a board director at the UK arm of a Swiss Private Bank where he oversaw the portfolio management function. He holds the Investment Management Certificate and the Chartered Institute of Securities and Investment Diploma. Colin is a Chartered Wealth Manager and a Chartered Fellow of the Institute of Securities and Investment. Quartet is a discretionary investment management firm managing bespoke portfolios for individuals and providing research and fund selection resources to firms who manage their own portfolios such as Brunel Wealth Management.
Below are performance charts for a selection of Brunel Wealth Management portfolios: Cautious, Balanced and Adventurous which are compared against the FTSE All Share.
The FTSE All Share is not a true benchmark because it is made up of 100% equities. Our clients’ portfolios only contain a percentage of equities. We use the FTSE All Share to give general market context and because it is the one most often reported in UK market news bulletins.
The 6 months show the impact on markets of Brexit
12 months include Brexit and the fallout from the markets going wobbly over China last year
Since the inception of our clients’ portfolios on 1st January 2012, the markets and our clients’ portfolios have experienced significant market meltdowns such as the Euro Crisis, Greece (twice), the fall out in the China market and most recently Brexit.
Brunel Wealth Management portfolios from 1st January 2012
The past performance is evidence that our philosophy is working.
Our approach is to hold a low cost, diversified portfolio. Our underlying philosophy is not to second guess the markets but to take advantage of what the whole market has to offer. It means not trying to control the markets using complex products such as hedge funds and structured products and sticking to a rebalancing programme when our portfolios become too weighted towards certain asset classes. We let portfolios breathe allowing the underlying holdings to do their job.
This four year scatter graph shows that our clients’ portfolios display lower levels of volatility but delivered higher returns than the FTSE All Share
Don’t get me wrong, they are all good guys but without a personal touch; without a special long term relationship that only we can nurture with our clients. That’s not the Fund Manager’s role, it’s to manage the fund not nurture a personal relationship.
In my view, the traditional Fund Manager’s view of investing is light years away from our view of what clients want.
We do not want to hold things we don’t understand and our clients certainly won’t understand: complex derivatives, hedge funds and structured products. We want a systematic, globally diversified approach that uses index funds to control cost. We believe this gives the best chance of success.
Put in a different way, this is investing in the whole market and benefiting in what the whole market has to deliver rather than today’s best performing part. Today’s hero can nearly always expect a fall. The whole market delivers over time. When China fails, America succeeds.
Brunel Wealth Management was set up this Summer 2016. It’s something we wanted to do from when we established Brunel Capital Partners in 2011. This was to have control over where our client’s funds were going and taking the right risks to suit our clients’ needs. But, we had to get our principal business of Lifestyle Financial Planning right first.
At Brunel Capital Partners, we practice Lifestyle Financial Planning. This means gaining a full understanding of our clients, their families and their desired lifestyles before we can recommend how best to organise their capital and the wealth available for investing. Investment should only take place when it is clear what we are investing for. It’s a means to achieving an end and the risk (always associated with investing) worked out when you know why you need to invest.
Lifestyle Financial Planning helps you find your number. How much money you will need for the rest of your life without the fear of ever running out.
With this information we create your financial plan and your financial plan demonstrates how much you have and how much you need to invest.
With this knowledge, we use Brunel Wealth Management to translate your investment goals into an affordable and effective investment strategy. One that concentrates on the long term rather than short term wins.
When we formed Brunel Wealth Management, we wrote to all our clients asking for permission to transfer funds from our existing fund manager to Brunel. All 300 signed up.
We thank you for your trust and will continue to manage your money as if it was our own.
Steve Brady, 0117 214 0870, firstname.lastname@example.org
We are fundraising for the Alzheimer’s Society.
When we sat down as a team to decide on a cause we would like to raise money for it was clear that many of our lives had been touched by dementia and Alzheimers. We have witnessed this disease slowly erase the personalities of those we love and the effect this has on those around them. It is therefore a cause close to our hearts and we want to do our small part to help a society that provides support to those affected by dementia and to help support research into the cause, cure, care and prevention of dementia, including Alzheimer’s disease.
If you feel able to support us, please do at Just Giving/Team Brunel Capital Partners
It’s a big question. More than that, it’s a big question that leads to hundreds, maybe thousands of other big questions.
You can’t answer the first question without the second, and you can’t achieve the second question without the first.
If you can answer these three questions accurately, you’re on the way to knowing your number.
Your number is the amount you need to live the way you want to live for the rest of your life, confident that you will never run out of money. Complete financial independence, or, if you prefer, freedom.
Since the introduction of pension freedoms your number has never been more relevant. Pension freedom puts the rest of your life in your hands. You have the freedom to take all of your pension funds at once (albeit taxed), but you also have the freedom to potentially run out of money. Pension freedoms could as easily have been called pension responsibilities.
Most people don’t take the time to find out their number and those who do find that it’s ever changing. You can work out your number at, say, 30 and then find that it’s a completely different Number when you’ve reached 40. Your lifestyle will have changed, your aspirations may have changed, and then there’s the costs of living and potentially long term healthcare provisions to compete with! It’s not easy finding your Number but it’s certainly necessary.
Remember those three tricky questions? Well let’s take a closer look at them.
I’ve heard the same answer to this question over and over again: ‘After I’ve retired I want to maintain my current lifestyle without ever running out of money’. After delving deeper I’ve found that this is never really the case. Some people want to support a charity or pass money onto their children, some people want to pursue a passion with their new found time, and some just want to live a simpler and calmer life. These are the people who find that their number is smaller than they thought. The point is that the very nature of your lifestyle will change in retirement so to just ‘maintain your current lifestyle’ is never enough. Which brings us to our next question:
This question addresses those uncertainties that will change your future and that are beyond your control. Maybe one of your children will unexpectedly boomerang back into your home, or maybe, hopefully, you’ll receive a windfall, an unexpected bonus. One unfortunate scenario that keeps emerging these days is the increasing need for long term care, the cost of which is often grossly underestimated. To be truly comfortable with your number you need to prepare for all of these uncertainties.
Of course there isn’t a definite answer to this, but if you know what you want to do with the rest of your life it’s possible to make a rough estimation as to how much that might cost. Then, using the various possible answers for what the rest of your life might throw at you, it’s possible to create different scenarios to see how you would fair financially under each circumstance. Finally, you factor in your life expectancy, and let’s be generous here.
When you think you might have an idea of what your number is:
You keep on top of your number, and eventually, when you’ve got it, you use it.
Using your number
Finding your number involves a lot of hard to answer questions, but once you’ve found it you’ll have a great deal of answers too. You may already have savings, but now you’ll know what you’re saving for and this will help you to save effectively. You might want an early retirement but may not be sure how early your savings will manage, but if you know your number, you’ve got your date.
It answers a whole range of ugly questions: at what point should you sell your business, when should you still be growing your business, and for what true purpose? It’s not just a case of what is your business worth, it’s a case of how much do you need it to be worth. If you know your number, these questions, and many others, answer themselves.
Just thinking seriously about your number now might change how you retire later, maybe you’ve been spending too much and need to cut back slightly now to live the rest of your life exactly how you want to live it. Or maybe, just maybe, you’ve already reached your number…
Knowing your number may well change your life.
Please talk to us if you want to find out more.
Once you have reached the point you can no longer enjoy an active lifestyle how will you enjoy peace of mind and comfort in later life?
I was sent an interesting article recently which suggested that a world cruise could be a viable alternative to entering a care home.
Whilst the point was slightly tongue in cheek it did raise a pertinent point about the affordability of long term care. This, in turn, made me wonder how much people consider long term care in their wider plans.
The average nursing home in the South West cost £851 per week in 2014/15 which is over £44,000 a year according to a LaingBuisson survey of care homes. Just for residential care the cost is still over £30,000 a year. A three plus month cruise could cost £675 a week which starts to look quite the bargain in comparison. It should also be pointed out that this is an average.
The more comfort you want to live in the more it will cost and over £1,750 a week is increasingly a reality.
The average person, self-funding their care, will spend nearly four years in a care home. That again puts the ‘average’ cost at £176,000. Not an insubstantial sum to still have in your bucket in later life. BUPA even has a resident who has been in one of their homes for 24 years. I daren’t get the calculator out for the cost of that!
Unfortunately, as is often the case, the headlines mask the reality. As well as delaying implementation to 2020, the amount the government count towards this cap is just £251 a week regardless of what you actually pay. It would therefore take over five years (287 weeks) to reach the cap. By that point the average nursing home resident in the South West would actually have spent £244,000. And afterwards you are still liable to ‘hotel costs’ which could be in excess of £20,000 a year.
Government studies suggest 70% of people reaching 65 will require some level of care in their lifetimes. Clearly this will come at different levels and most will not need to leave their own homes. Industry projections suggest that those requiring residential care will be closer to 1 in 3 women and 1 in 4 men albeit an ageing population is only likely to send the numbers in one direction.
Should you stop spending and enjoying your life and start saving every penny again? Fortunately, there are a range of ways to mitigate the potential cost of long term care but it does involve careful consideration and planning.
Whilst this may not be an immediate concern for you, we are finding that an increasing number of clients have parents reaching the position where long term care is an issue.
If this sounds familiar or you feel may become an issue in the future, please give us a call to talk things over.
We’re pleased to say we’ve not been resting on our laurels here at Brunel! We recently had our British Standard Audit and have just heard that we have passed again, meaning we can carry our BS8577 accreditation on for another year. This Standard evaluates the ‘framework for the provision of financial advice and planning services’ and is one we place great value on as it reflects our commitment to quality and continuous improvement. Read more …
Last month our Client’s Corner feature was an article entitled ‘God bless the Brits’ and expressed some pretty strong views in favour of the Brexit result.
It certainly produced some strong reactions from some of you and so we’d just like to explain the background behind it. We included the piece, which was written by Nick Murray, as an alternative view from across the pond. Nick is based in Southold, NY, in the States and is in his 50th year in the profession of financial advice. He is a well-known speaker within the industry and is the author of eleven books for financial services professionals. Read more …
Earlier this year, the Telegraph published a short series of two articles entitled, ‘In your 40s with ‘peaking’ earnings? Here’s your perfect financial plan’ and, ‘In your late 50s or early 60s? Here’s your perfect financial plan’.
Like a lot of ‘financial planning’ published in the mainstream press, there are some good pointers, tips and highlighting of common issues. ‘Recalibrating your budget so that you can save,’ for example, is a strong recommendation for most people at most stages of life. As a nation, we still typically don’t save enough, especially if we do not have a financial plan in place, so spending a little less and putting a little more away can help individuals to move towards a better retirement. Read more …
With the Summer holidays approaching, it’s time once again for the parents among us to put our thinking caps on and attempt to come up with six weeks’ worth of fun and activity!
We’ve long talked about how schools should include a level of personal finance education within their curriculums but, until that happens formally, it’s down to Mum and Dad to provide some guidance around money matters for the younger generation. Read more …