Smart Beta: Wealth Matters' Cleworth shifts into passive-only portfolios

Paul Cleworth, director of Wealth Matters, has shifted entirely into passive-only portfolios, with Vanguard and Dimensional dominating his institutional fund picks.

Wealth Matters, of Luton, Bedfordshire, has completely overhauled its investment style since 2006.

‘Our core investment philosophy has changed over the years from 100% active to 100% passive,’ said Paul Cleworth, director of the firm.

He said he now placed three considerations at the forefront of his investment: transparency, diversification and low cost.

‘There is a lot of empirical evidence regarding passive and little, if any, to show that active management achieves a higher return over the long term,’ said Cleworth. ‘We can’t promise returns, but we do give our clients the best potential of achieving their goals within a given risk tolerance.’

The firm’s in-house investment system, called Wraps (Wealth Matters risk-assessed performance system), consists of seven core portfolios built with 15 funds (10 equity, four bond and one property) all of which are passive in nature. Six of those funds are shown in the graphs on page 52. The lowest-risk portfolio has 80% in bonds, while the highest risk is fully invested in equities.

Avoiding complexity

Wealth Matters steers clear of exchange traded funds (ETFs) on the grounds of extra layers of complexity, counterparty risk and expense.

‘Many of our clients are "accumulators", paying regular premiums,’ said Cleworth. ‘When you use ETFs, you have to buy at least one whole share, which can be problematic for clients paying low regular premiums.

‘The dealing commission and bid-offer spread per ETF can be counterintuitive. It’s a myth that ETFs are cheaper than unit trusts or open-ended investment companies: it depends on which collectives you use.’

Cost control

By using institutional accumulation funds, the average weighted annual management charge of the seven portfolios is just 0.28% and the average weighted total expense ratio (TER) is 0.34%.