Investment Newsletter - May 2014

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Investment Newsletter May 2014

Cost & Value By Mike Deverell Investment Manager

When putting together your investment portfolios we are extremely conscious of the cost of the investments we buy. Charges are a key part of our fund research and we will always try to negotiate the best deal on your behalf. If there are two funds of a similar quality then we will often opt for the cheaper of the two funds. In investment selection there are plenty of unpredictable factors beyond our control. We cannot know whether a fund will outperform or not in advance or what direction a market will go, although we can make informed decisions after detailed research. However, one factor we know for certain in advance and therefore we have complete control of, is the cost of that investment. Of course cost cannot and should not be the overriding factor in our research process. As the old saying goes,

“cost is what you pay, value is what you get.” We are therefore focused on value for money rather than purely cost. We have recently made some changes to portfolios reducing exposure to index tracker funds in favour of actively managed funds. By actively managed fund we mean one run by a fund manager picking and choosing which stocks to buy, as opposed to a “passive” fund which simply tracks an index such as the FTSE. Buying active funds tends to mean an increase in costs. For example, we can purchase a FTSE Allshare tracker for 0.15% whereas a typical actively managed UK equity fund might cost 0.75%. That means the actively managed fund has to outperform by 0.6% pa in order to achieve the same performance as the FTSE. Not all fund managers are capable of doing this consistently.

Equilibrium Asset Management LLP (a limited liability partnership) is authorised and regulated by the Financial Conduct Authority. Equilibrium Asset Management is entered on the Financial Services Register under reference 452261. The FCA regulates advice which we provide on investment and insurance business; however it does not regulate advice which we provide purely in respect of taxation matters. Copyright Equilibrium Asset Management LLP. Not to be reproduced without permission.


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Investment Newsletter - May 2014 by Equilibrium Financial Planning LLP - Issuu