David Philips and Steve Bennett say they are financial planners, not fund pickers. As such, the directors at Cannock-based Wealth Design like discretionary fund managers (DFMs), who do the selection for them. They use Cazenove, Brooks Macdonald, Rathbones, Quilter Cheviot and Charles Stanley.
‘I explain it to clients like this,’ said Philips. ‘I can advise you in two ways. I can go through the Racing Post, pick horses that have done very well and, on that basis, put money on them to do well in the future.
‘But, if racing conditions change, the horse falls ill, or the jockey fails, I can do little about it until it’s happened. Well, something similar goes for fund managers.
‘What if we’ve got a man who, during the race, can change the horses and the riders according to those conditions? Wouldn’t that be better?’ he asked. ‘Well, this is like using a discretionary manager. Mind you, it’s a bad analogy to use racing and betting.’
Making a match
‘Yes, stick to making coffee,’ Bennett joked. But he pointed out: ‘If we place a client in the right risk level and give them the right asset allocation, we are in a position to talk through their capacity for loss.
‘In this way, the client understands what might happen to their portfolios and the financial effect it will have on them personally,’ he explained. ‘After all, the markets will do what the markets will do. We just help clients with the rest of their journey. They come to us to help them get this part right.’
Relationships with DFMs, rather than performance, generally inform the firm’s choices. So does having a wide enough range to ensure manager personalities can be matched with clients.
‘Some DFMs will include individual equities, which suits certain clients. Others are more cautious, which suits other clients,’ Bennett said. ‘Some clients want to meet the DFMs and others don’t. So we need firms happy to run on different bases.’
A typical Wealth Design client has around £400,000 to invest. But for those wanting to invest £250,000 or less, the firm uses FE Invest hybrid model portfolios. These comprise five risk-graded portfolios, each with options for three time horizons (short, medium and long).
Range of funds
The biggest weighting in the FE Hybrid 3L portfolio is the Artemis US Select fund, at 17.5% (see chart, below). This is managed by Citywire A-rated Cormac Weldon. He has held a Citywire rating every month since May 2017 and is ranked in the top 10% of his North American equities sector.
The FE fund claims to have a flexible approach to US equity investing, although it is currently biased towards growth and technology companies. Its largest asset allocation, at 47.5%, is to global developed equity. This is followed by fixed interest, at 24.5%; UK equity, at 23%; and property, at 5%.
Other funds making up the FE Hybrid 3L portfolio are: Allianz Gilt Yield; Fidelity Moneybuilder Income; Invesco Perpetual European Equity, run by + rated Jeffrey Taylor; Baillie Gifford Japanese, run by A-rated Matthew Brett and AA-rated Sarah Whitley; Schroder US Mid Cap; HSBC Global Property; Standard Life Investment UK Equity Income Unconstrained; Marlborough UK Micro-Cap Growth, run by the AAA-rated pair Giles Hargreave and Guy Feld; and Threadneedle UK Equity Income.
Given their favourable view of DFMs, it is no surprise Philips and Bennett believe in active management. Even so, there are passives in both the hybrid and passive ranges, although none in FE’s active range.
But Philips offers a note of caution on a purely passive approach. ‘If you look at the markets in January, the FTSE 100 was down by almost 10% at one point,’ he said. ‘With passives, you’re just tracking that loss.’