Strong field gave us a top-class final list.
WILLIE CROCKETT, EDINBURGH RISK MANAGEMENTWE BELIEVE Angus will require net growth in the value of his investments of about
6.75 per cent a year, requiring a gross-of-charges return of about 8.5 per cent. To achieve this, Angus will need to increase his exposure to equities.
It is a difficult time for the global economy and the importance of a well-diversified spread of assets remains paramount, as does recognition of current investment cycles.
We are currently advocating an equity/bond split of 75/25 but, as part of our equity exposure, we have included the MacQuarie Global Infrastructure Securities and the Merrill Lynch Gold and General Funds. These holdings should further reduce risk in view of their non-correlated nature.
On the equity front, we have a higher than normal overseas exposure, mindful of sterling weakening. We have included funds with a more focused number of holdings to enhance our opportunities for capital growth without increasing volatility.
We have also taken a calculated risk through a small position in the Scottish Widow Investment Partnership Financial Fund as we believe that there is a good opportunity for a rebound in the value of these stocks outside of the United States.
Overall, we have a preference for Europe and Asia with an eye to expanding our large cap US exposure as opportunities present themselves. Japan remains on our radar but we have limited exposure at present while we await signs of growing consumer confidence. We will make slight adjustments soon after the launch of the competition.
• Willie Crockett is managing director of ERM. His specialist areas of advice are tax and trusts, investments, long-term care and equity release.
ADELINE CHRISTY, KUDOS IFSTHERE were a number of major considerations in the preparation of the proposed portfolio for Angus MacDonald.
First, his main objective is to provide an income of about £50,000 a year in ten years' time, at retirement.
While this may be an unrealistic figure based on his investment horizon and cautious risk profile, it was my intention to invest for growth using his existing fund of £300,000 and subsequent annual £10,000 premiums.
Although this strategy may not tie in with his naturally cautious attitude to investment, ten years seems like a long enough period to smooth out volatility and maximum returns through diversification.
As part of the portfolio-building process, I have only included those asset classes where I believe that on a one-year view positive returns can be achieved, and accordingly I have omitted investments from the major markets of North America and Japan. Another missing asset class is commercial property, which, following several years of stellar returns, I believe may still have further to fall.
Sentiment remains very low and downward re-rating continues, with few buyers, especially at a time when bank lending is almost non-existent.
Most important to me is the ability to review such a portfolio regularly, in order to take advantage of new situations, as economies change and individual managers move on, and to weed out any under-performing funds that may have disappointed.
This active strategy is inherent in all the portfolios I create for clients, with regularly stringent monitoring of all underlying holdings, and the ability for clients such as Angus McDonald to express any changes to their own personal situations that may affect the manner in which his portfolio is managed.
• Adeline Christy is a director with Kudos IFS and a driving force behind the expansion of its wealth management business.
DUNCAN MACKENZIE, MACKENZIE TAYLOR WEALTH MANAGEMENTANGUS has already consolidated his pension arrangements into a self-invested personal pension.
He has been specific in his objectives of retiring in ten years at the age of 60 with an estimated income of £50,000 a year. He is prepared to contribute £10,000 a year. until retirement, and he has recognised that to achieve this goal he may have to increase his exposure to risk.
Using further assumptions on the likely annuity rate for Angus at 60, it was possible to calculate the likely fund required at retirement (about £770,000) to meet his income goal. From this target retirement fund, the annual return required on the initial investment is 7.5 a year.
All of the above falls apart if the annuity rate for a 60-year-old male is not 6.5 per cent when Angus retires.
Now comes the difficult part: deciding upon a portfolio that will deliver 7.5 per cent for a period of ten years.
In the current climate with cash and fixed-interest returning about 5 per cent, equities on the decline, and commercial property also in negative territory, the task is not easy.
My initial portfolio is more about capital preservation than seeking growth.
The portfolio is almost 50 per cent in cash and fixed interest, and a good proportion of this will be moved into investment funds when the economic climate improves.
For the remaining portfolio, I have concentrated on global and emerging markets with 28 per cent of the portfolio, as I believe that the non-G7 economies offer better prospects for growth. The UK, Europe and North America will be preoccupied with the ramifications of the subprime debt fiasco. Non-G7 economies, on the other hand, still have scope to move forward.
• Duncan Mackenzie co-founded Mackenzie Taylor Wealth Management in 2007.
JOHN MOORE, CENTRAL INVESTMENT SERVICESWHEN first considering a scenario such as Angus Macdonald's, I like to establish the feasibility of the client's objectives.
To date the client has been very cautious with his investments and although he has indicated that he is willing to accept some additional risk, I normally view a change in risk profile with an element of caution. My assessment is that the client's objectives can be met without significantly increasing the risk to capital.
The first stage in the investment process is to decide on the recommended asset allocation to provide an optimum level of return.
The next stage is to blend the investment styles and approach adopted by individual fund managers to meet the recommended asset allocation. Many funds invest in broadly similar companies ensuring that good or poor performance is mirrored across these funds. By analysing the underlying holdings and investment styles, we can ensure that the portfolio is not over-exposed to any particular sector.
Over the term of the competition, performance will be monitored closely to take advantage of any profit-taking opportunities and to ensure that the portfolio remains consistent with the agreed asset allocation.
I believe the Chinese growth story will continue, although valuations are stretched. As an alternative, I favour holding JPM Natural Resources as an indirect benefactor of continued Chinese and Indian growth.
I can envisage adding exposure to UK property, which I believe has been oversold at current levels. If sentiment improves then there could be an opportunity to re-enter this sector over the coming year.
• John Moore is a senior adviser at Central Investment Services in Aberdeen. He graduated in actuarial mathematics and statistics in 1993.
GORDON FORBES, CALEDONIA ASSET MANAGEMENTANGUS'S situation is similar to many of our clients, in that they are reaching a stage in life where they realise they may have to do something radical if they are to achieve a similar lifestyle in retirement as they have now. I have looked at Angus's entire financial situation to design, implement and manage a bespoke investment strategy for him.
In taking pension investment decisions, I have applied our core principles of investment management which are:
1 – Matching Angus's investment strategy to his attitude to risk – there has been an adjustment made here, for as a previously cautious investor, Angus realises that adhering strictly to this approach would allow no possibility of realising his goals.
2 – Ensuring diversification and the spreading of risk in tandem with our current view of market sentiment during 2008.
3 – Inflation protection.
4 – Expert investment management.
5 – Provision of regular streamlined and accurate information.
In designing and managing Angus's portfolio, I have drawn on in-house experience built up over a total of 60 years across the team, coupled with the use of strategic asset models. I will continually monitor this over the year through the use of external research services and our programme of contact with third party managers. As we do with all our clients, I will maintain a hands-on approach throughout the year, with regular commentaries, reports and review meetings, to give Angus expert advice on every aspect of his pension planning and investment strategy.
Gordon Forbes is the managing director of Caledonia Asset Management. He has particular expertise in individual and corporate pension and investment strategies.
MARK HOUGTON, CONDIES WEALTH MANAGEMENTFIRST, it was necessary to evaluate whether Angus's target income was achievable.
From the current fund size and future contribution levels, I established the growth rate required and whether this would be attainable, given the client's "naturally cautious" attitude to risk.
From the research, it was known early on that to meet the clients' retirement income of £50,000 a year, based on past performance, he would have to accept increased exposure to investment risk or make higher contributions. I deemed it more important to meet the clients' interests than chase the potentially higher returns available through riskier strategy.
The markets have been relatively volatile over the past few months and the growth prospects for the forthcoming year may be more restrained than before.
Using an asset allocation approach, I decided to invest 28 per cent in fixed interest, 10 per cent in property and 2 per cent in cash. The remaining 60 per cent will be invested in the major equity markets – UK, Europe, United States and the Far East.
Funds were chosen based on a number of factors, including past performance and market outlook.
The use of specialist funds will offer a different dimension to the client's portfolio and should be good investments in the current market conditions. As no access will be required before retirement, no specific cash holding was maintained, although a small reserve would be kept within the self invested personal pension to cover charges.
The holdings are designed to generate steady returns with some capital security. A real level of growth should be achievable.
Mark Houghton is a senior financial adviser with Condies Wealth Management. He has over 11 years' experience within the financial services sector.
DAVID RANKIN, BELL LAWRIEIT WAS clear the client was looking for an ambitious level of growth. To achieve an income of £50,000 we need to grow the pension fund to between £750,000 and £900,000.This will require a growth rate of between 8 per cent and 9 per cent each year.
I have identified the portfolio weightings which will potentially achieve this target rate. The client had a cautious profile towards investment, but said that this may need to change to achieve the goals. I agreed with that assessment and suggested a medium/high-risk strategy should be implemented. I structured the self-invested personal pension (Sipp) to provide a globally diversified, balanced portfolio of assets.
The largest weighting within the portfolio is UK equities, which I consider still to be attractively valued. By investing in a diversified portfolio of equities we could expect to hit the target return of 9 per cent per annum.
To further enhance this equity exposure and diversify risk, I established positions in the major economies of the world. To balance the risk of the portfolio, I also placed 23 per cent into fixed-interest markets. The return from fixed interest is likely to be lower than that of equities but should still provide a premium over cash.
As the pension is a long-term investment vehicle, I did not feel it necessary to hold any cash.
The other sector I avoided for the time being is commercial property.
• David Rankin specialises in advising high net worth private clients at Bell Lawrie in Edinburgh.
KEITH THOMSON, BLACKADDERSWE HAVE calculated that a fund of £670,000 at retirement is required to generate an income of around £50,000 a year, using the existing pension fund of £300,000 plus annual contributions of £10,000. This is assuming the client also wishes to provide a 50 per cent spouse pension.
Although Angus is a naturally cautious investor, the fund needs to grow at 9 per cent a year which is unlikely to be achieved if he invests on a fully cautious basis. Angus needs to accept a higher degree of risk to achieve his target, consider the possibility of investing further additional sums or extend his proposed retirement date.
The suggested portfolio has 15 per cent in fixed interest, 15 per cent in European equities, 36 per cent in UK equities, 8 per cent in the Far East, 13 per cent in United States equities and the remainder in cash, structured products and other global equities. We expect lower stockmarket growth and increased volatility in the short term.
Corporate bond funds should benefit from falling interest rates, while we would select equity funds investing mainly in large cap, internationally diversified US, UK and European companies, as well as having a small exposure to the Far East, preferably excluding Japan, Hong Kong and China. We have also used some funds to provide absolute positive returns with low volatility to provide some protection against short-term market fluctuations.
• Keith Thomson is director of investment services at Tayside law firm Blackadders.
DAVID THOMSON, VWM WEALTH MANAGEMENTOUR approach started by identifying the size of pension Angus required to generate income of £50,000 each year, starting a decade from now and based on current annuity rates.
We calculated the annual growth rate required to achieve the income, bearing in mind the likelihood that Angus might wish his pension to be index-linked and/or based on joint lives with his wife. From this analysis a return of around 11 per cent to 14 per cent each would be required to broadly meet the objective.
We then compared this against the returns from various investment portfolios and strategies since 1970 to demonstrate that Angus would have to adopt a more adventurous attitude to investment risk.
We settled on a balanced strategy as a compromise between his current cautious attitude and the double-digit growth required.
We then proposed a well-diversified balanced asset allocation to reduce the portfolio risk and matched this with further diversification at the fund level. We recommend that our fund selections are held within a self-invested personal pension (Sipp) on a wrap platform to benefit from ease of administration and economies of scale.
Key to the whole approach would be the ongoing management and review of the portfolio to ensure it is on track and performing efficiently.
• David Thomson is investment director at VWM Wealth Management in Glasgow and has 30 years experience in financial services.
STEVE WILSON, ALAN STEEL ASSET MANAGEMENTTO PROVIDE the income Angus wants with inflation and widow's protection will cost about £2 million in ten years. A 10 per cent return after charges will provide half of that and he is naturally cautious.
This means he needs to put more money in and be more adventurous. Despite widespread pessimism for stockmarkets this year, I believe many factors point to a good year. Over the past 135 years, year eight of the decade has produced good returns, plus smart investor momentum is positive, and private investor sentiment is as low as it was in 2003.
I have selected a risk rating of six and a large capitalisation company international bias. When selecting the funds, Aegon UK Equity and Artemis Capital will provide large cap growth. This should be complemented with funds such as Artemis UK Special Situations and Standard Life Equity High Income. I see the real opportunities over the next 12 months coming from overseas markets, which is why I have included exposure to America and Asia with Martin Currie. The United States is unloved at the moment and is unlikely to fall into recession. There should also be many opportunities in Europe but much of the growth should come from global and emerging markets.
Finally, with regard to the fund managers, I have included the fantastic Robin Geffen at Neptune Global Alpha and Ian Warmerdam at Henderson Global Technology as wild cards.
• Steve Wilson joined Alan Steel Asset Management in 2006.
