Smart Beta: Broome's Ben Rees adopts a mix-and-match approach

Ben Rees of Broome Financial Planning adopts a mix-and-match approach, investing in gold, index-linked gilts and passive global small caps for lower costs.

Milton Keynes-based Broome Financial Planning adopts a mix-and-match approach when it comes to its investment philosophy.

‘Our investment process is based on an active programme of research and quantitative and qualitative screening,’ said director and chartered financial planner Ben Rees. ‘We look predominantly for funds that have provided strong risk-adjusted returns over the longer term, and typically avoid funds with short track records, high portfolio turnover rates and opaque structures.

‘Where we believe the chances of active funds beating the index are low, we look to passive funds and exchange traded funds (ETFs) as lower-cost alternatives that will capture the index return. This reduces costs, but also means that we can predict the returns from that element of the portfolio over the longer term much more accurately,’ he said.

‘After that, we are mainly interested in tracking error analysis, stock-lending activity risk and the underlying structure of the passive or ETF vehicle.’

Physical backing

One ETF Broome has used since February 2011 is ETF Securities Physical Gold , which is backed by physical holdings. Bars of gold are held by a third-party custodian, HSBC Bank, and investors can check to see which gold bars it currently holds via the ETF Securities’ website.

Rees said: ‘This fund quite simply tracks the physical gold price. Most exchange traded commodities (ETCs) track futures’ prices, but this fund actually holds the physical metal gold bars, which means it does not risk considerably underperforming the spot price. Unlike synthetic ETCs and ETFs, it’s also not subject to swap counterparty risk, another big boon.’

Offsetting inflation risk

Another ETF the firm likes is the iShares Barclays Capital Index-Linked Gilts fund, which it has recommended since November 2011. This ETF aims to track the performance of the Barclays UK Government Inflation-Linked Bond index as closely as possible.