WE ARE now three months into The Scotsman IFA of the Year competition, run in association with Scott-Moncrieff Wealth Management, and few commentators could have predicted the turbulent start to the year in global stock markets.
The credit crunch – a term that is now hard to escape – has made it difficult for all investors and their independent financial advisers (IFAs). Our competitors and Angus MacDonald, their client, have been affected as much as anyone.
Our ten brave
IFAs have the difficult task of sticking to the job of helping MacDonald achieve his long-term financial goals and stick to their investment strategies in the face of strong adversity.
While each competitor has seen the value of MacDonald's portfolio drop in value since January, our IFAs continue to make sensible decisions in their choice for funds. There hasn't been chopping and changing in panic, but there have been fund switches to reduce the risks.
Read on to find out how our IFAs have fared, how they have made their investment choices and what commentators have to say on the competition to date.
Steve Wilson - Alan Steel Asset Management THE first thing to remember is this is not a ten-week competition, nor was our strategy.
It's been a tough time for markets in the past four months.
The only changes to the portfolio are to have sold Henderson Technology, bought JPM Natural Resources and added Scottish Widows Investment Partnership's emerging markets.
Keith Thomson - BlackaddersFROM outset, global markets have been extremely volatile, as expected, so we structured the portfolio accordingly.
The remaining funds in the portfolio have performed to expectation. The initial aim remains to preserve the portfolio value through diversification and prudent asset allocation and yet be positioned to benefit from any market upturn in the coming months. Market volatility is still a concern.
Duncan MacKenzie - MacKenzie Taylor Wealth Management THE initial decision to hold a significant amount of cash has protected the portfolio in a volatile markets. There have been a couple of opportunities to invest some of the cash as markets plunged, but there continued to be a considerable amount of uncertainty and fear about. Cash felt comfortable.
In the past couple of weeks, positive sentiment seems to have returned and, looking forward, some changes were necessary.
John Moore - Central Investment Services THE past three months have been nothing less than a roller coaster for financial markets. In my opinion the current credit crunch is the biggest financial crisis for a generation and this has made investment decisions very difficult. In such times it is important to maintain a diversified portfolio of non-correlating assets that will reduce the overall volatility of a portfolio.
David Rankin - Bell Lawrie SINCE the initial investments were made within the pension in late January 2008, volatility has remained high within global equity markets. The investment strategy is designed to create a balanced, globally diversified portfolio with a long-term mandate. As we are considering the investment management of pension funds for at least the next ten years, the first three months is not the time to be tinkering with the structure and incurring costs for the client, unless fundamentally something has changed over the period.
David Thomson - VWM Wealth Management THE first quarter has been a "baptism of fire" for Angus's portfolio. His move to a more growth-focused strategy has coincided with a period of equity market weakness. As we would not wish him to become concerned at such an early stage and in response to the deterioration in the global economic outlook we have reduced equities within the portfolio, removed property and increased defensive fixed-interest investments.
David Rankin - Bell Lawrie SINCE the initial investments were made within the pension in late January 2008, volatility has remained high within global equity markets. The investment strategy is designed to create a balanced, globally diversified portfolio with a long-term mandate. As we are considering the investment management of pension funds for at least the next ten years, the first three months is not the time to be tinkering with the structure and incurring costs for the client, unless fundamentally something has changed over the period.
Steve Wilson - John Moore Central Investment Services THE first thing to remember is this is not a ten-week competition, nor was our strategy.
It's been a tough time for markets in the past four months.
The only changes to the portfolio are to have sold Henderson Technology, bought JPM Natural Resources and added Scottish Widows Investment Partnership's emerging markets.
Adeline Christy SINCE the start of the competition in mid-January, all major equity markets have fallen on the back of a severe credit crunch, and on fears of recession in the United States and its impact on the rest of the world.
Consequently, I have increased exposure over the quarter to the Insight Diversified Target Return Fund which has an absolute return focus with a target to produce positive returns on an annual basis.
Gordon Forbes - Caledonia Asset Management I HAVE made only one change – replacing Schroder Income Maximiser with Neptune Russia and Greater Russia. I felt that Angus had too much exposure to the income sector, and to balance this I believe that this fund, with a strong emphasis towards energy and telecoms, is a complementary holding. As the demand and supply in commodities shows no sign of slowing down, then this fund sits well with the JP Morgan Natural Resource selection.
Willie Crockett - Edinburgh Risk Management THE severity of the liquidity tightening on investment markets has resulted in a number of early changes, reducing our exposure to smaller-caps equities while increasing our large-cap holdings in more focused stock picking funds.
We have also introduced further diversification into alternative funds and specific property investments through a holding in SVM Global Opportunities.
Mark Houghton - Condies Wealth Management DURING the first quarter of this year the markets have been highly volatile. There seems to be a consensus that global economies will be subdued, possibly well into 2009, and in addition we have contraction in credit, hitting households and companies. This combines to make this year very interesting, requiring frequent reviews of the portfolio. I think my strategy has performed reasonably well as I have outperformed the FTSE 100 and am currently sitting mid table.
UNPRECEDENTED VOLATILITYHAVING entrusted his pension fund – of around £300,000 – to his independent financial adviser (IFA), our case study client, Angus MacDonald, may be feeling just a little uncomfortable and nervous at the moment, writes Raymond Ellis.
Especially if he has seen the value of his retirement funds reduce by 4 or 5 per cent over the last 12 weeks. Admittedly, he conceded at the outset that he may have to accept a higher degree of risk to achieve his ultimate objective, but he never anticipated anything like this and, at this moment in time, I'm sure he is probably feeling slightly out of his comfort zone.
No-one could have accurately predicted the degree of volatility that's been experienced over the first quarter, but our competitors were expected to construct a portfolio that would reflect the client's attitude to risk and achieve his objectives – an almost impossible task in the short-term. However, over the ten-year period that Angus has before retirement, there is still time to make up for short-term losses and to build the fund to an acceptable level within sight of his targeted amount.
The importance of regular contact with clients during periods of market turbulence cannot be over-emphasised.
IFAs may not be able to directly influence the short-term performance of their client's portfolio but a few reassuring words can at least provide an element of comfort by confirming that their clients' plans are still on target and that this current spate of volatility is just a short-term blip in the longer-term scheme of things.
It's very interesting to see the diversity of approach that each competitor has adopted and how they are managing their client's portfolio through this unprecedented period of uncertainty.
• Raymond Ellis is director of Scott-Moncrieff Wealth Management
