IFAM: How is your strategy positioned? Do you see the MPS as having a particular target client segment?
WB: Yes there is. We position the MPS for those clients who typically will have less than £250,000 to invest and where CGT should not become a major issue in the investment mix. Above this of course, we offer a more bespoke service which is ideally suited to the needs of larger investors. As we’ve already discussed, the MPS is purposely focused on ethical considerations. What we’ve learned over the years is that when clients become interested in the idea of ethical investment, they tend to get much stricter with their ethical criteria over time as their experience of investing this way grows. For us, it is far more important that the client continues to trust their adviser and for us, as well as being trusted to manage the investment proposition, we also need to be trusted to meet the ethical criteria too. Therefore we have often taken a more cautious approach to investment which has ethical selection right at its heart. This way we can have confidence that it will lead to better outcomes for the clients on both investment and ethical grounds.
Our five models are risk-based, ranging from cautious to adventurous and are designed to suit different clients’with a range of risk and income requirements. It is still the case that the more ethically-driven is the focus of a particular strategy, then the higher the corresponding risk involved with that strategy becomes. So, in essence, darker green portfolios will therefore have higher risk profile than lighter green.
IFAM: How do you manage risk within theportfolios?
WB: We manage risk primarily through our asset allocation strategy. It’s an important aspect and one where we like to go into great detail. For example, in the fixed income arena, we will move between index-linked and conventional holdings. Going deeper into this, within the conventional arena we will then make decisions on the merits of higher grade bonds versus lower grade corporate bonds. Duration of bond funds is also an important factor for consideration. In the past, we’ve included two index-linked funds which didn’t have a specific ethical mandate. However, through our deep-dive of the funds’ holdings, they still met the ethical criteria and therefore were included for a time. This helped reduce the overall risk on the portfolios. As this highlights,we always look in great detail at the underlying holdings of every fund which comes across our radar as a possible and eligible investment so that we can ensure that the overall portfolio accurately meets our objectives. After all,it’s those holdings which are the real truth, and in turn the reality of the portfolio.
The geographical allocation is considered too, not just fora particular company’s country of listing but also where that company makes their money. For example, many of the UK’s largest companies derive most of their profits from overseas and therefore we need to consider that risk. This has contributed to our portfolios demonstrating lower volatility when compared to broad market indices.
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