Markets Interim Report….”We all MUST do better?”

Come on …lets own up and be honest…………

As interest rates have fallen from their 1990’s peak of 15%, expectations for investment fund returns have fallen accordingly. What hasn’t fallen in line, however,  are the various layers of  fees that accrue in the process of managing funds for third parties. As a result gross fees can now sometimes make up 20 % of net returns and that’s in a good year! Ask any Teenager now would he start a pension?……………the answer……….probably NOT!

The “man in the street” doesn’t mind paying a fee for superior performance. However, what perpetuates is the unhealthy perception of being “ripped off” and fleeced even before going to market and then receiving a seemingly constant litany of excuses for poor performance and why hard earned retirement capital has failed to achieve the original objectives established in the earliest client meetings.

We accept that there will always be poor years as markets evolve and bubbles burst after periods of growth, but we do take issue with continuing poor practices.

As we adjust to current markets, characterised by uncertainty and the likelihood of more prolonged periods of sideways movement, surely we cannot permit ourselves to continue with the old passive practices of “buy and hold” hoping that a 20% year will repair the ills of a potentially greater number of unsatisfactory years.

It is increasingly important that the focus of your market analysis is the timing and asset allocation of your portfolio during low return periods. The ability to preserve capital in the course of sideway market movements as they rise, without subsequently giving it back as the market declines, represents the most likely means of accumulating long term portfolio growth.

The Table below shows the significant and rapid trend change recently experienced in Equity Sector Performance from Q1 through to end of Q2.

Equity Sector Performance Review-Week 6-22













More than likley this will be reflected across all funds in the same markets. More than ever, just because a Fund has been in the Top 10% Performance does not guarantee that it will remain so? Accordingly, as the adviser you must take all reasonable steps to avoid the pitfalls of poor practice. This starts with client risk profiling and tax planning, progressing through control of fees and in to closer monitoring of investment performance.

There will always be a debate regarding the value of premiums paid to active managers versus passive investment strategies.  Whether you select an active manager or not you must be on the case for your client because the effect of all fees in the coming years will be more pronounced. In simple terms you want the client to value the cost of your recommendations over the fees of the investment manager.


 Active Management- by your DFM and you the Adviser

The imminent RDR changes require changes for us all………to embrace new ideas and adapt to new practices and opportunities.

The table above highlights the week on week, Year to Date (YTD) performance for each industry sector. Almost across the board we have seen the optimism of the New Year giving way to the current period of uncertainty. Your failure to salvage some of this value for your client has greater implications for their pension pot going forward than a similar movement might have had prior to 2008.

We are not suggesting that advisers become asset managers but you must have the tools in place to ask the question of the investment manager. What was your investment manager saying and doing as the markets turned? Did they reduce equity exposure within the funds or should you have taken action to move to cash by alternative means.

This can be done in many ways and it is up to you as the adviser to balance transaction costs, investment managers and asset allocation processes in order to preserve client wealth.

We know that it IS in our power to choose Funds that have been avoiding the Telecoms Sector from January or the Commodities Sector for the last month? Equally, look at the dramatic movement of nearly 40% from +23.08% to -21.77% in the Banking Sector as a perfect demonstration of the markets taking back gains.

For example……Ask yourself this…..What will this snapshot look like when you have your next Client Review meeting? Have you got the tools to identify the ebb and flow of the markets? Could you do something, however small for your client?

As far as we are concerned, not having any tool that attempts to preserve portfolio values in difficult markets is poor practice. We know that being able to act through your asset allocation process is difficult at times but not knowing when you might have to act is worse.

The Tables below highlight the significant changes in Equity Sector performance (% Ytd) between Week 6 and 3 months later in Week 22





We have said the importance of fees and the value that they deliver is vital when we are faced with erratic markets. client relationships will be built post RDR directly on the value of your recommendations.

As such, good practice will be represented by taking action for your Client containing the key elements of:

  • Client Risk Profiling and Tax Planning
  • Increased Market awareness and knowledge to make suitable choices of Fund and Fund Manager
  • Regular and effective monitoring of Fund activity
  • Assurance of more dynamic asset allocation through your  investment manager solution

If you can say that you have these factors in hand you might be able to point to at least avoiding poor practice.

This is NOT “hindsight dealing” the trends were apparent as we progress from week to week.

For further information on how Sinergi Management in real time can help to improve your Investment allocation process Click Here

Keith Reid
Keith Reid
Keith’s training as an accountant and auditor has emphasized the importance of evidence in all good decision making process. The ability to monitor management processes effectively is a key to making the most of business opportunities. Both Keith and Gerry believe that this priority for capital preservation is the common principle that sets the framework for any sound investment strategy or business model.