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Cover star recap: Family fortunes

Cover star recap: Family fortunes

Four years ago, Beaufort Financial (Reading) started using the discretionary fund manager (DFM) arm of its umbrella firm Beaufort Group. The DFM, called Beaufort Investment Management (BIM), offers a fully bespoke solution with active, enhanced passive and ethical options.

Beaufort Financial (Reading) director Chris Shaw (pictured) says: ‘We could no longer have advisers giving specialist investment advice. Regulatory demands are such that we need to focus on financial planning, but with a specialist investment process behind it.’

Excitement ahead

BIM’s active portfolios have run for 13 years, and its passive ones for five. Beaufort Financial’s assets are currently 80% active and 20% passive. But Shaw says the latter will grow.

‘I’m excited about passive because of the cost structure and because the data shows asset allocation is more important in the long run. The number of active fund managers will shrink over time.’

The enhanced passive portfolios use a strategic allocation with a tactical overlay. They can use active funds if the manager thinks they add value, says Shaw.

‘For example, we worry about just tracking a bond index as the bond market is overpriced,’ he explains. ‘If we can’t get value from a passive structure in that asset class, we would choose an active fund. In this case, we chose the UBS Sterling Corporate Bond Indexed fund.

‘The enhanced passive portfolios can also use alternatives investments, which don’t necessarily have passive structures. The annual management charge can increase to 0.4% to accommodate active alternatives.’

Portfolio performance

The BI Enhanced Passive Portfolio 6 currently contains 54% equities and 6% alternatives. It outperformed the Investment Association Mixed Investment 40% to 85% Shares sector significantly in 2014 and 2016, but fell far behind it in 2015. Shaw pointed out this portfolio outperformed its own benchmark, a composite of MSCI world equity and bond indices, over one, three and five years.

BIM rebalances and reviews funds quarterly. Recently, the portfolio reduced exposure to US and UK equities, as monetary policy is tightening in those countries, and added to global and emerging market equities.

It also maintained its almost neutral 24% weighting in the UK. Shaw does not anticipate the pound strengthening soon. This will support FTSE 100 companies, which derive much of their profits from overseas.

BIM benefits

Some would question whether there is a conflict of interest in using BIM. Shaw accepts the DFM is a big part of the firm’s proposition. But he says Beaufort Financial is still a whole-of-market IFA, does not use BIM exclusively and uses alternatives where appropriate.

‘One plus of BIM is that I know the manager very well; I go to quarterly meetings and I have access,’ he says. ‘Also its long-term performance stacks up. Returns are similar to the FTSE 100 over longer periods, but with much less volatility.’

Surpassing the standard

BIM compares itself to cash, inflation, the FTSE 100, relevant Investment Association sectors and the Asset Risk Consultants (ARC) index of DFMs. BIM’s enhanced passive portfolios 4 to 10 have beaten all these over five years since launch. Meanwhile, the very low-risk portfolios 2 and 3 have beaten everything except the FTSE.

BIM’s active portfolios 6 to 10 have beaten all five benchmarks over 13 years; and 4 to 10 have beaten all except the FTSE.

In the third quarter of 2017, BIM’s active portfolios sold JP Morgan Strategic Bond, Kames UK Equity Absolute Return and Artemis UK Special Situations, and bought BNY Mellon Global Leaders.

Shaw says the latter ‘is run by the highly regarded global equities team at Walter Scott, a subsidiary of BNY Mellon. This new fund was launched in December 2016. As relatively early adopters, we negotiated favourable terms in perpetuity.’

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