InvestmentCommittee ANNUAL REPORT 2015 Produced on the 20 January 2016
bluecoat wealthmanagement
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providing clients with a high level of diversification through investment in collective funds
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Investment Committee
EXECUTIVESUMMARY In order to try and get the best possible equity market returns, we focus clients’ exposure on dimensions of higher expected return that various academics have identified, notably Professor Gene Fama, of the University of Chicago Booth School of Business, and Professor Ken French, of the Tuck School of Business, Dartmouth College. Their research suggests that smaller companies and low-priced companies (these are companies whose book value of assets is high relative to their market price) perform better than the market average over time. Because risk and return are related, the higher expected return comes at a price and, as a consequence, investing in these companies is riskier than investing in the whole market. There are periods when these groups of shares underperform the market, but over time, the academic research indicates that these risk premiums have been worth paying for. It has now been 18 months since we launched our Smart strategies with the help of our investment partners. The solutions provide our clients with a high level of diversification through investment in collective funds. During the first 18 months the portfolios have been tested through a period of good growth, and in more recent times, through the return of volatility. It is therefore important to take these factors into consideration when reviewing the strategies.
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often in periods of short-term uncertainty, the best approach is to do nothing
Annual Report 2015
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INVESTMENTCOMMITTEE Patrick Murphy Chartered Financial Planner FPFS, CFPcm, Chartered FCSI Patrick has worked in Financial Services since 1972 and has been advising Private Clients since 1994. He has kept himself at the forefront of financial planning and investment management having achieved the coveted UK title of Financial Planner of the Year in 1997. He holds a BA(Hons) Financial Services degree from Napier University in Edinburgh and is a Fellow of the Personal Finance Society, a Chartered Financial Planner and a Chartered Fellow of the Chartered Institute for Securities & Investment. In addition, he holds the G70 Investment Portfolio Management Certificate from the Chartered Insurance Institute.
Jamie Rice DipPFS Jamie joined Zen Wealth LLP in 2013 and has worked in Wealth Management since 2009 having previously worked for a large high street bank. He holds the Regulated Diploma in Financial Services and provides technical and analytical data to the Investment Committee.
Tudor Griffiths DipPFS Tudor is an independent financial adviser of 30 years standing, based in the City and working with some of the best known national and boutique financial planning firms. He is experienced in corporate and pensions investment, often taking a longer-term investment perspective whilst appreciating the need for investment outcomes to match client needs and liabilities. Tudor has advised prominent universities, businesses and professional practices, working very closely with accountants, solicitors and actuaries. He is very much in the forefront of developing investment solutions for SMEs taking on the employer responsibilities of workplace pensions and auto-enrolment.
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Investment Committee
Robin Clarke CFPcm, Chartered MCSI, APFS Robin spent the early part of his career working for a large high street bank. This was back at the time when your local branch was central to your community, when banking customers were known by name and you had a personal relationship with your bank manager. In 1997 Robin became an IFA; he felt disillusioned that the bank was losing its community feel and he wanted to focus on meeting the needs of his clients – not selling products. Robin now owns Bluecoat Wealth Management, a boutique Chartered Financial Planning business dedicated to providing independent advice and Wealth Management services to individuals based in Sussex and the South East. Robin is both a Chartered Financial Planner and a Chartered Member of the Chartered Institute of Securities & Investments.
Andrew Smith IMC Andrew has been Chairman/Chief Executive of a number of businesses and has over 25 years experience, particularly in the asset/wealth management worlds. He was the Founder and CEO of one of the UK’s leading Wealth Management firms, HambroFraserSmith; ran a global joint-venture with American Express Financial Services for over four years; and he developed institutional-style Multi-Asset portfolios with Goldman Sachs International for UK retail clients. Andrew’s focus over the last few years has been in marrying the latest thinking in investment management with technology solutions to deliver a superior clientservicing proposition.
Ian Fridlington IMC Ian has been acting as a consultant to the Investment Committee and is in the process of being elected to the Committee. Ian has over 29 years’ experience in providing investment management solutions for UK and global wealth management businesses. He is an award-winning fund manager, with over 15 years’ experience in the successful application of asset allocation models and alternative strategies. Previously a Partner with private equity firm CopperTree Capital Investment Strategy, Ansbacher & Co Ltd, Ian has also held a number of investment and client-facing roles within retail and international banking groups, and holds the Investment Management Certificate as well as being an Associate of the Institute of Financial Services. Ian is qualified and registered to manage retail as well as institutional mandates.
Annual Report 2015
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LOOKINGAHEAD The first week of 2016 from an Economic point of view, has been the worst opening week on the markets since the dot.com bubble in the year 2000. The past year has brought with it a number of big surprises in economic terms – the Chinese stock market crashed spectacularly over the summer, with the Shanghai Composite index dipping 8.5%, and repercussions felt in markets around the world. In addition, oil prices would remain low and at the end of 2015 the Federal Reserve in the US announced its decision to raise interest rates for the first time in nine years. We believe that it is impossible for anybody to forecast how the markets will perform in the short-term, but over the long-term we are very confident that they will recover – the difficulty is knowing precisely when. Here are just a couple of examples of why we hold that belief: • For the broad US equity market, 22 strategists polled by the Wall Street Journal, 2 estimated an average increase for the S&P 500 of 8.2% for 2015. The most optimistic individual forecast was for a rise of 14%. The least optimistic was 2%. No-one picked a fall. As it turned out, the benchmark ended marginally lower for the year. • In the UK, a poll of 49 fund managers, traders and strategists published in early January 2015 forecast the FTSE 100 index would be at 6,800 by mid-year and 7,000 points by year-end. As it turned out, the FTSE surpassed that yearend target by late April to hit a record high of 7103, before retracing to 6242 by year-end. It is our belief that setting an investment course based on someone’s stock picks or expectations for interest rates, the economy, or currencies is not a viable way of building wealth in the longterm. Markets have a way of confounding expectations.
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Of course this doesn’t stop individuals having or expressing an opinion about the future. We are all free to speculate about what might happen in the economy and markets. The danger is when you base your investment strategy on an opinion. In the meantime, here is our list of ten predictions that we can all count on coming true in 2016: 1. Markets will go up some of the time and down some of the time; 2. There will be unexpected news. Some of this will move prices; 3. Acres of newsprint will be devoted to the likely path of interest rates; 4. Acres more will speculate on China’s growth outlook; 5. TV pundits will frequently and loudly debate short-term market direction; 6. Some economies will strengthen. Others will weaken. These change, year to year; 7. Some companies will prosper. Others will falter. These change, year to year; 8. Parts of your portfolio will do better than others parts. We don’t know which; 9. A new book will say the rules no longer work and everything has changed; 10. Another new book will say nothing has really changed and the old rules still apply. Forecasts are so hard to get right, therefore in the majority of cases you are better off keeping them as generic as possible. Like a weather forecaster predicting wind, hail, heat and cold over a single day, your audience will prepare themselves for all climates. The future is always uncertain. There are always unexpected events. Some will turn out worse than you expect; others will turn out better. The only sustainable approach to that uncertainty is to focus on what you can control.
Investment Committee
LOOKINGBACK Equity and Bond Returns 2015 MSCI EM GR USD Barclays Global Aggregate TR GBP Barclays Euro Agg Bond TR EUR Barclays US Agg Bond TR USD Barclays Sterling Agg TR GBP Barclays Asian Pac Ex Japan TR USD MSCI USA GR USD MSCI Pacific Ex Japan GR USD MSCI Japan GR USD MSCI UK All Cap GR USD MSCI Europe Ex UK GR USD MSCI World Growth GR USD -15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
All data contained within the graph has been sourced using Morningstar Adviser Workstation
2015’s key by-word was volatility. Investors have, over the past 5 years lived a relatively charmed existence, with low volatility. Investments as a whole do not always rise in a predictable manner. Overall global equity markets ended the year in negative territory having started the year on a downward note before rising to summer highs, only to be driven to uncomfortable levels in September.
The UK’s largest trading block also did not serve sterling investors well over the year, with the Eurostoxx 50 returning a lacklustre 1.89% in GBP terms. Individual European Markets fared better, with Italy and France both posting solid returns. The German Dax also returned positively for UK investors, albeit 3.54%, while Spain’s Ibex Index was one of the worst sterling performers in 2015 down 9.12% over the period.
Domestic bias is a hot topic amongst investors, with the advantages and disadvantages debated amongst analysts. We have elected to take a global market capped approach which was rewarded in 2015. UK investors would certainly have missed out on attractive returns offered globally. In the year to 31 December 2015 the FTSE 100 returned -0.26% in sterling terms, compared with returns of 13.28% and 13.27% from Japan’s Nikkei and the US Nasdaq Index respectively.
Fixed Income came under pressure as the “will they/won’t they” debate was carried out in painful slow motion both in the US and the UK.
Annual Report 2015
Europe bucked the trend and elected to increase quantitative easing. Oil continued to slide to new lows as a result of over-supply and slowing global economic growth. Commodities continued their multi-year decline with few signs of a reversal. Elsewhere, global property closed out the year broadly where it started. Whilst UK Property reflected modest growth.
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All data used to calculate performance has been done on a cumulative, total return basis using Morningstar Adviser workstation
STRATEGYANALYSIS Fixed Interest Property Equity
Fixed Interest Property Equity
Fixed Interest Property Equity
Fixed Interest Property Equity
Fixed Interest Property Equity
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SMART 1
01/01/2015 – 31/12/2015
Since Inception 01/06/2014
Standard Deviation (3yrs)
Strategy
1.13%
4.44%
2.59%
Benchmark
2.00%
4.43%
1.30%
Since Inception 01/06/2014
Standard Deviation (3yrs)
SMART 2
01/01/2015 – 31/12/2015
Strategy
1.17%
4.57%
3.27%
Benchmark
1.87%
4.49%
2.11%
Since Inception 01/06/2014
Standard Deviation (3yrs)
SMART 3
01/01/2015 – 31/12/2015
Strategy
1.21%
4.73%
4.11%
Benchmark
1.74%
4.57%
3.01%
Since Inception 01/06/2014
Standard Deviation (3yrs)
SMART 4
01/01/2015 – 31/12/2015
Strategy
1.17%
4.85%
5.07%
Benchmark
1.59%
4.61%
3.94%
Since Inception 01/06/2014
Standard Deviation (3yrs)
SMART 5
01/01/2015 – 31/12/2015
Strategy
1.04%
4.86%
5.98%
Benchmark
1.40%
4.60%
4.87%
Investment Committee
Fixed Interest Property Equity
SMART 6
Fixed Interest Property Equity
4.84%
6.87%
Benchmark
1.21%
4.60%
6.66%
Since Inception 01/06/2014
Standard Deviation (3yrs)
01/01/2015 – 31/12/2015
Strategy
0.70%
4.84%
7.67%
Benchmark
1.04%
4.59%
7.70%
Since Inception 01/06/2014
Standard Deviation (3yrs)
01/01/2015 – 31/12/2015
Strategy
0.52%
4.85%
8.68%
Benchmark
0.81%
4.57%
8.65%
Since Inception 01/06/2014
Standard Deviation (3yrs)
SMART 9
01/01/2015 – 31/12/2015
Strategy
0.40%
4.84%
9.47%
Benchmark
0.58%
4.52%
9.60%
Since Inception 01/06/2014
Standard Deviation (3yrs)
01/01/2015 – 31/12/2015 EQUITY
Annual Report 2015
Standard Deviation (3yrs)
0.89%
SMART 8
Fixed Interest Property Equity
Since Inception 01/06/2014
Strategy
SMART 7
Fixed Interest Property Equity
01/01/2015 – 31/12/2015
Strategy
0.10%
4.54%
10.34%
Benchmark
0.26%
4.26%
11.28%
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GROWTHOFWEALTH
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Smart 10 Smart 9 Smart 8 Smart 7 Smart 6
Smart 1
Smart 2
Smart 3
Smart 4
Smart 5
Source : Morningstar Advisor Workstation
Investment Committee
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we are all free to speculate about what might happen in the economy and markets
Annual Report 2015
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Bluecoat Wealth Management Basepoint Ropetackle Shoreham-by-sea West Sussex BN43 5EG
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T: 02173 466533 E: info@bluecoatwm.com www.bluecoatwm.com