Guide to Investment Objectives and Risk Classification

Transcription

1 Guide to Investment Objectives and Risk Classification

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3 Investment rarely, if ever, provides guaranteed returns. There are many variables which can affect the performance of a portfolio from stock market fluctuations, changes to personal circumstances, taxation and legislative changes. Once an investment is moved from the relative security of a bank or building society account it must be viewed as having moved into a risk environment. The process of balancing greater risk with potentially greater reward then begins.

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5 Custody of your investments At Bartholomew Hawkins Asset Management the safety of our clients assets is of paramount importance. As a result we use a nominee company to hold our clients assets on their behalf; it reduces costs and minimises paperwork. We have appointed Pershing Securities Limited as our custodian. Founded in 1939, Pershing is a London based subsidiary of BNY Mellon (Bank of New York), which currently has $28.5 trillion of assets under custody*. A nominee company is a separate legal entity and its assets are not regarded as assets of Bartholomew Hawkins Asset Management, Pershing or BNY Mellon, therefore as a client you can be sure that your assets are safe should anything happen to these companies. Understanding risk Risk is another word for uncertainty or unpredictability. Most investments carry an element of risk as it can be difficult to know what your returns will be. The amount of risk that you are willing to take and over what period of time, directly affects your potential returns. In general, the less risk your investment carries, the lower potential return you can expect to make; whereas the higher the risk, the greater the potential return. However, this higher potential carries the risk of greater fluctuations and potential losses. Our investment philosophy revolves around providing the optimum investment performance for a given level of risk. We will assist you in arriving at this risk tolerance and then recommend the most appropriate portfolio to match your circumstances and needs. Measuring risk Measuring risk is important. This enables us to construct an appropriate investment portfolio in addition to ongoing risk monitoring which ensures your portfolio remains in line with your investment strategy and objectives. At Bartholomew Hawkins Asset Management we consider many risk factors that could impact your investment portfolio. Our favoured technique for quantifying risk is to analyse the historical volatility of an investment. As an investor it is important to consider the cyclical nature of financial markets and inherent volatility. Our approach to investment management through the understanding and measurement of risk is key in order to smooth out market volatility over time *correct as of March 2015

6 Your need to take risk In order for us to build a bespoke investment portfolio to meet your investment needs we must take you through a detailed process of getting to know your financial situation, your life goals and your investment objectives. Your investment strategy will include addressing your desired outcomes, in other words what are you investing for, what goals and desires do you have for this money and what are the timeframes involved? Although you may have the capacity and the willingness to take on a high level of investment risk, however, your specific financial goals might dictate that you don t need to expose yourself to such levels of risk. Conversely, you may not be comfortable with taking any risk with your capital but there may be a need to take some risk in order to meet your objectives. We will discuss and explain these implications with you in great detail and help you make an informed decision about the level of risk you wish to take. HERE ARE SOME OF THE AREAS YOU SHOULD CONSIDER: What am I investing for? What means do I have to enable me to invest? How long am I prepared to invest for? Do I need access to my money at any point? What other investment products do I already have? What degree of risk am I prepared to take? Your capacity for risk You may be willing to take on large amounts of investment risk, however, your circumstances may dictate that you can t afford to take that risk without it potentially having a materially detrimental effect on your standard of living. Your Capacity for Loss indicates the level of investment risk you can feasibly take, or your ability to absorb falls in the value of your investments, without jeopardising your financial security. In order to establish your capacity for loss we ask clients a series of risk-graded questions which gives an overall score for your capacity for loss. Your attitude to risk Even if you can afford to make a loss on your investments, it would be foolish to choose a higher risk investment portfolio if worrying about its potential volatility will give you sleepless nights. It is vitally important you are comfortable with the level of risk being taken with your portfolio; attitude to risk is a personal decision which will be affected by your own circumstances, personality and investment objectives. In rising markets people can overestimate their appetite for risk, and vice versa. In order to establish your attitude and tolerance to risk we ask clients a series of detailed risk-graded questions which gives an overall score for your Attitude to Risk. Once we have established your attitude to risk, your capacity to take risk and the need to take risk into consideration of your financial objectives we will then be able to agree your overall risk profile. A client s risk profile is reviewed on a periodic basis and forms the foundation for the provision of appropriate investment strategies. 06

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8 Things to consider before investing Time horizon We believe you should take a medium to long term view of your investment: that is, you should expect to stay invested for five years or more. This means short term fluctuations in financial markets should have less impact on the long term value of your investment portfolio. Uncertain returns You should be aware the value of investments can fall as well as rise. This is particularly important if you are investing with a view to funding a specific event, because you might want to liquidate your investments at a time when the market has fallen. Your investments may not then be able to fund your plans as you had hoped. Risk tolerance Some investors can tolerate risk more than others, remaining unperturbed when their investments fall, even to levels below their original value. Such investors are confident their investments are likely recover and will rise in value before they decide to liquidate them. Other investors are more cautious, and would rather forego the prospect of higher returns in exchange for a lower chance of capital loss (although all investments carry the risk of loss of capital to some degree). Growth or income Most investments aim to deliver either growth over the longer term, a flow of income, or a combination of both. Your own circumstances will dictate what is suitable for you and your needs may change over time. 08

9 Your investment objective the three risk factors When designing a bespoke investment portfolio for you, it s important we fully discuss the implications of investment risk, explore your feelings towards investment and the exposure to risk this will bring, and come to an informed decision regarding the three risk factors: Your need to take investment risk Your capacity to take investment risk Your attitude towards investment risk These three factors will dictate your investment decisions and will drive the objectives and outcomes of your bespoke portfolio. It s vitally important that we fully review your personal and financial circumstances on a regular basis as any chances in these circumstances will materially affect these three risk factors. YOUR NEED TO TAKE RISK YOUR CAPACITY TO TAKE RISK YOUR ATTITUDE TO RISK YOUR INVESTMENT OBJECTIVE

10 Guide to investment objectives, risk classification & capacity for loss Investment objective Risk classification Benchmark 1 DEFENSIVE CAUTIOUS LOW RISK The aim here is to provide low volatility of portfolio returns and ultimately capital preservation. Given the lower amount of risk taken, clients should expect a modest but consistent portfolio return. Typically you are willing to invest in non-cash assets which will include some exposure to equities. You accept that growth prospects are limited and understand your investment can fluctuate in value, meaning you could get back less than you invest. Investment Association Mixed Investment 0% - 35% Shares 2 CAUTIOUS CAUTIOUSLY OPTIMISTIC LOW/MODERATE RISK You are prepared to accept low-to-moderate investment risk in return for growth potential. Typically you will invest in a wide variety of assets including exposure to equities. This will increase the amount by which your investment can fluctuate in value. You could get back less than you put in. Investment Association Mixed Investment 20% - 60% Shares 3 BALANCED BROAD DIVERSIFICATION MODERATE RISK You are looking for a balance of risk and reward with the aim that, in the longer term, higher returns may result. You are willing to accept that the value of your investment will fall and rise in value and you could get back less than you invest. Typically you will invest in a wide variety of assets. Investment Association Mixed Investment 20% - 60% Shares 4 CAPITAL GROWTH CAPITAL GROWTH MODERATE RISK You are willing to accept a moderate level of risk on your investment in order to seek growth potential in the longer term. You are prepared to accept that this will increase the risk of moderate fluctuations in the value of your investment which could result in an erosion of capital. You could get back less than you invest. Typically you will invest in a wide variety of assets. Investment Association Mixed Investment 40% - 85% Shares 5 AGGRESSIVE PROGRESSIVE CAPITAL GROWTH MODERATE/HIGH RISK You accept a moderate-to-high level of risk on your investment in order to seek growth potential in the long term. You are willing to accept large day-today fluctuations in the value of your investments and you accept the risk of losing some or all of your capital. You could get back less than you invest. Investment Association Mixed Investment 40% - 85% Shares 6 SPECULATIVE SPECULATIVE GROWTH HIGH RISK This is out highest risk level. Typically you are an experienced investor with a good understanding of the risk/reward balance and you are willing to accept significant and very sharp fluctuations in the value of your investment. You accept the risk of losing some or all of your capital. You could get back less than you invest. Investment Association Flexible Investments 10

11 What is a benchmark? The purpose of a benchmark is to give an investor a yardstick against which they can measure the performance of their own investment portfolio. Benchmarks are usually indices produced by external organisations to show the performance of different types of investment. The benchmarks listed here are the ones we believe best match the investment objectives for each risk category. The performance of your portfolio will vary from the performance of the benchmark due to the bespoke nature of our portfolios, but should remain relatively close as the contents of the portfolios (and the risk level that implies) will be similar. Benchmark Description Investment Association Mixed Investment 0% - 35% Shares Funds in this sector are required to have a range of different investments. Up to 35% of the fund can be invested in company shares (equities). At least 45% of the fund must be in fixed income investments (for example, corporate and Government bonds) and/or cash investments. Cash can include investments such as current account cash, short-term fixed income investments and certificates of deposit. Investment Association Mixed Investment 20% - 60% Shares Funds in this sector are required to have a range of different investments. The fund must have between 20% and 60% invested in company shares (equities). At least 30% of the fund must be in fixed income investments (for example, corporate and Government bonds) and/or cash investments Cash can include investments such as current account cash, short-term fixed income investments and certificates of deposit. Investment Association Mixed Investment 40% - 85% Shares Funds in this sector are required to have a range of different investments. However, there is scope for funds to have a high proportion in company shares (equities). The fund must have between 40% and 85% invested in company shares. Investment Association Flexible Investments The funds in this sector are expected to have a range of different investments. However, the fund manager has significant flexibility over what to invest in. There is no minimum or maximum requirement for investment in company shares (equities) and there is scope for funds to have a high proportion of shares. The manager is accorded a significant degree of discretion over asset allocation and is allowed to invest up to 100% in equities at their discretion. Source: Investment Association

12 Capacity for loss The charts below simulate a range of possible annualised outcomes over multiple time periods for each risk-graded investment strategy. Each investment strategy has a different level of risk and you should make sure that you are comfortable with this. 2 DEFENSIVE 40% 30% ANNUAL GROWTH 20% 10% 0% -10% -20% -30% 1YR 3YRS 5YRS 7YRS 10YRS 15YRS 3 CAUTIOUS 40% 30% ANNUAL GROWTH 20% 10% 0% -10% -20% -30% 1YR 3YRS 5YRS 7YRS 10YRS 15YRS 12 Source: FE Analytics, evalue & Bartholomew Hawkings Asset Management

13 4 BALANCED 40% ANNUAL GROWTH 30% 20% 10% 0% -10% -20% -30% 1YR 3YRS 5YRS 7YRS 10YRS 15YRS 5 CAPITAL GROWTH 40% 30% ANNUAL GROWTH 20% 10% 0% -10% -20% -30% 1YR 3YRS 5YRS 7YRS 10YRS 15YRS 6 AGGRESSIVE 40% ANNUAL GROWTH 30% 20% 10% 0% -10% -20% -30% 1YR 3YRS 5YRS 7YRS 10YRS 15YRS 7 SPECULATIVE High risk investment mandate Driven by investment selection rather than asset allocation No risk tollerance Incorporates Bartholomew Hawkins Asset Management s quantitive screening process

14 Risk management must be the unequivocal foundation to portfolio construction.

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16 5 Oaktree Court Cardiff Gate Business Park Cardiff CF23 8RS LinkedIn: bartholomew-hawkins-asset-management Bartholomew Hawkins Asset Management Limited is authorised and regulated by the Financial Conduct Authority (626359). Registered in England & Wales ( ). Company Registered office: 5 Oaktree Court, Cardiff Gate Business Park, Cardiff CF23 8RS. RISK WARNING Past performance is not a reliable indicator of future performance. The information contained in this document has been prepared for information purposes only and does not constitute advice or a personal recommendation, nor does it constitute an invitation to purchase investments. It does not purport to be a complete description of our investment policy, markets or any securities referred to in the material, and should be read in conjunction with our Terms & Conditions, copies of which are available on request. The information on which the document is based is deemed to be reliable, but we have not independently verified such information and we do not guarantee its accuracy or completeness. Changes in exchange rates may have an adverse effect on the value, price or income of foreign currency denominated securities. The value of your investments and income derived from them may fluctuate and investors may not receive back the amount originally invested. The securities and investment services discussed in this document may not be suitable for all recipients. Bartholomew Hawkins Asset Management Limited recommends that investors independently evaluate particular investments and strategies and encourages investors to seek the advice of a financial planner. The levels of taxation and their respective treatment depend on your individual circumstances and the applicable law, which may be subject to change in the future. The appropriateness of a particular investment strategy will depend on an investor s individual circumstances and objectives. BHAM007 JUNE15