A detailed guide to how we manage your investments

17 November 2022

As you will appreciate, this year has been very busy, and the aim of this article is to report on some of the work that we have been undertaking and some of our underlying thought processes.

Read on to find out how our investment committee operates, and how we take extensive action to help ensure your assets are provided with a favourable environment in tough times.

Meet the members of our investment committee

Our investment committee sits on a regular basis to review investment solutions for our clients. 

In doing so, they help ensure that our investment partners manage portfolios within their remit and in line with the risk profiles and time horizons of our clients. 

Our committee comprises all our regulated advisers, our paraplanning team, and Paul Watson, a third-party investment consultant with more than 30 years’ experience of institutional investment with HSBC and Mercer. 

The committee is led by Andrew Day, who has only recently been voted the PFS Investment Specialist of the Year for 2022. The irony of achieving this merit in such a year of investment turmoil has not been lost on Andrew, the team, or no doubt our clients!

Our investment committee has worked tirelessly to monitor your investments during this year of instability

The work of the committee is ongoing as we go through various economic cycles that pose different challenges. 

2022 has posed many problems for investors, with most gilts, bonds and equities being in the red so far. The markets have grappled with rising interest rates, the consequences of the pandemic, the Ukraine war, and Chinese zero-Covid lockdowns pouring fuel on the inflation flames. 

Most importantly, one of our central views is to remain invested in the long term, to ensure that portfolios benefit from likely rallies after we experience sharp downturns. 

The following data on previous falls in the US S&P 500 index shows the subsequent rebounds that took place over 1-, 3-, 5-, and 10-year periods.

So, if your investments have experienced a downturn this year, we remain confident that by staying invested your portfolio could yield desirable returns when markets stabilise. 

We work with experienced discretionary fund managers to continually monitor your assets in the long term

The solutions that we advise upon provide access to discretionary fund managers (DFMs), who have authority to change the portfolios as and when they feel appropriate. 

This allows quick changes to be made to portfolios, as opposed to requiring constant client authorisations which inevitably leads to delay. Often, assets are held over a number of years to wait for the investment to come to fruition in line with your long-term goals.

Over the years, we have carefully selected preferred DFMs and funds through an in-depth due diligence process, and have advised upon portfolios managed by FE Invest, Square Mile, Tatton, AJ Bell, and Quilter. 

Our due diligence has led to collaborating with partners that offer low costs in discretionary fund management, supported by robust investment teams that provide a risk-managed approach to the investment of capital. 

A step-by-step summary of some of the work completed this year is as follows. 

• As early as October 2021, we became concerned about client exposure to government gilts in what could become a more inflationary period. 
• We reviewed our portfolio partners, and FE Invest stood out as having significantly high exposure to gilt funds – more than 40% in some scenarios. Our (mostly retired) clients accessing drawdown portfolios had exposure to FE Invest strategies. 
• In late 2021, we then decided to reduce the FE exposure by 50%. 
• As the position further deteriorated through the year, we advised that the remaining 50% be replaced during autumn 2022; this ended an eight-year partnership with FE.
• These actions have improved the position for our retired clients, although the portfolios have still taken a backwards step. 
• Our other investment partners have also suffered in 2022, but had more flexible mandates, and have either beaten or are close to matching their benchmarks with greater exposure to short-term investments and specialist areas. 
• Overall, we choose to work with quality businesses that may be favourably placed to ride out market downturns and often pick up failed competitors later in the cycle. 
• Plus, for retired investors, we have introduced some specialist defensive funds from specialist fund houses in Ruffer and Troy. 
• These funds are more expensive, but have protected elements of portfolios with small returns or negligible falls in the last 12 months as they adopt a capital protection approach. 
• For our longer-term investors that are pre-retirement, we have again removed FE Invest and introduced alternatives. 
• For both categories, it is a case of waiting for the cycle to change. Already we expect that inflation may be lower in 2023, and could dip below 5% by November. This is likely to be a more supportive outlook. 
• Overall, these changes have led to significant levels of activity throughout the year in both our committee and administration team. 

As independent advisers, we have the great benefit to offer solutions throughout the market. Our recommendation to drop FE Invest demonstrates that our investment committee has a robust process to make necessary changes where required. 

Your investments may continue to experience volatility in 2023 – but we are prepared to help monitor them

Recent indicators have seen the Dow Jones in the US has risen 11.4% since the start of October (to 5 November 2022) and more stability has come to the bond markets. 

Nevertheless, we expect that markets may continue to be volatile into 2023 and that recessionary conditions could prevail in the UK and Europe. 

We should also remember at this time that the markets always work in advance of economic conditions, often up to 18 months in advance. So, we may see that when inflation and interest rates peak, risk assets sharply rise again – although we may still have the consequences of recession. 

It is at this point in the cycle that investors may be rewarded for your patience and holding your nerve through tough conditions. 

Get in touch

For a bespoke review of your investment portfolio, email info@depledgeswm.com or call 0161 8080200.

Please note

This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.