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My asset allocation: Sam Holmes of Paradigm Norton

My asset allocation: Sam Holmes of Paradigm Norton

Paradigm Norton has used its merger as an opportunity to adjust its portfolios. In January, the Bristol-based advice firm announced it was merging with London-based The Red House Consulting, with the latter rebranded to Paradigm Norton. This has been accompanied by an integration of investment processes to ensure a coherent group-wide investment proposition.

‘Red House’s investment approach was philosophically quite similar to ours,’ said Sam Holmes, a chartered financial planner and wealth manager at Paradigm Norton. ‘It was a case of how we manage that on an operational level and how we tweak the portfolios to ensure they’re coherent across both businesses.’

Holmes said some changes have been made to asset allocation. These include reducing UK equity exposure and selling out of sterling inflation-linked bonds.

Paradigm Norton follows an evidence-based approach, investing in line with principles that are supported by some academic studies. Strategic asset allocation is relatively static and tactical asset allocation moves in response to market events are avoided.

Dimensional index funds are held across portfolios because the team likes the provider’s tilt towards smaller companies and value stocks. Meanwhile, Vanguard index funds are used to provide broad market exposure at low cost.

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The investment committee meets quarterly to discuss selections within asset classes, while top level strategic asset allocation is reviewed annually. Fund selection is monitored on an ongoing basis.

Holmes said fixed income will be considered at the next investment committee meeting. The committee will consider where interest rates are and the potential for lower equity market returns in the next five to 10 years.

Fixed income allocations currently comprise short-dated high credit quality global bonds, hedged back to sterling. But global equity investments are unhedged.

Holmes said the team will consider lowering credit quality to achieve potentially higher returns, but only if it fits the risk-return profile of portfolios. ‘Academic research shows lower credit quality gives higher expected returns in the long term, although you get higher volatility,’ he said.

In the past three to five years, the team’s US equity exposure has driven performance. In addition, emerging market equity allocations have paid off in recent years. But global commercial property, which is the only ‘alternative’ allocation in the portfolios, has proved a dampener in the year to date.

*Excludes platform charges and adviser fees. Includes charges on constituent funds.    

Data to: 31 December 2017

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