There are many different methodologies that can be applied to running an investment portfolio. Historically this has usually meant handing your funds over to a Discretionary Investment Manager or Stockbroker and relying on them to ensure that your funds are invested in the correct stocks and bonds for the prevailing markets. In reality this approach has proven to be both flawed and expensive. Trying to time markets with any degree of consistency has been proven to be virtually impossible and star fund managers tend to come and go with alarming regularity.

We believe that the only true indicator of consistent performance is cost. Many studies have shown that low cost funds tend to show greater levels of consistent out-performance over longer terms and our investment proposition embraces this research.

In 2008 Provisio designed and launched our own range of low-cost, risk-graded, multi-asset portfolios which can be held within any of the tax favoured wrappers that we advise on. The portfolios range from Defensive through to Aggressive and in the 9 years since we launched them have all delivered returns within the parameters which we set for them. We put this down to the fact that the portfolios are constructed using predominantly low-cost index tracking funds (sometimes called passive funds) rather than more expensive actively managed funds (active funds) where managers take “bets” that certain stocks within a particular asset class can achieve higher returns than the sector in general, or alpha as it is often referred to. The problem with this active strategy is two-fold;

  1. No manager can consistently outperform the sector over the long term
  2. When the manager gets it wrong, losses can be magnified

For this reason we limit exposure to these “bets” and simply buy the return of the overall asset class at the lowest cost using appropriate index tracking unit trusts. The table below shows the current holdings within the Provisio Balanced Portfolio.


How have the Provisio portfolios performed?

The chart below shows the performance of our range of portfolios (here referred to as “illustrated”) compared to the average of similarly risk-rated funds available in the UK market (here referred to as “UK RTMA”). The Risk Targeted Multi Asset (RTMA) sectors include funds from all the major investment managers and insurance companies.

Whilst this chart shows that all of the Provisio Portfolios have outperformed their respective benchmarks in terms of Total returns, we are more concerned with the consistency of return rather than the overall number. If a portfolio is consistently above average it shows that the overall return is not as a result of one period of significant short-term out-performance which can obviously be misleading. This focus on consistency is vitally important when a portfolio is being used to provide a regular stream of income.

Risk vs Reward

The chart below shows the performance of our portfolios (yellow) against their relevant RTMA sector averages (red) and RTMA sector constituent funds (blue) over the last nine years. The x-axis shows risk (or volatility) and the y-axis shows total return over that time period.

As is indicated by the fact that all of our portfolios sit on the upper edge of the chart, they have all delivered the highest returns over the last 9 years for any given level of risk. The only fund to produce higher returns was taking a substantially higher degree of risk than we believed to be prudent for our clients over the time period in question.

Our portfolios are doing exactly what they were designed to do – provide maximum return at minimum risk – and our focus on reducing investment cost is a major contributing factor to that outcome.

The Next Step

If you would like further information on the above post or to discuss your own specific circumstances please give the team a call on 01462 687337 or email info@provisio.co.uk.

IMPORTANT INFORMATION
WHILE A REASONABLE COURSE OF ACTION REGARDING INVESTMENTS MAY BE FORMULATED FROM THE APPLICATION OF OUR RESEARCH, AT NO TIME WILL SPECIFIC RECOMMENDATIONS OR CUSTOMISED ADVICE BE GIVEN, AND AT NO TIME MAY A READER BE JUSTIFIED IN INFERRING THAT ANY SUCH ADVICE IS INTENDED. ALTHOUGH THE INFORMATION CONTAINED IN THIS DOCUMENT IS EXPRESSED IN GOOD FAITH, IT IS NOT GUARANTEED. PROVISIO WEALTH MANAGEMENT WILL NOT ACCEPT LIABILITY FOR ANY ERRORS OR LOSS ARISING FROM THE USE OF THIS DOCUMENT.