Unbiased Financial Analysis
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Investment Process

The following process is employed to construct a portfolio for use within any of the solutions described in the other parts of the website.

Our investment process comprises of 5 main stages:

  • Portfolio strategic asset allocation
  • Rigorous fund manager selection
  • Portfolio composition
  • Active tactical asset allocation
  • Continuous monitoring

    • Portfolio Strategic Asset Allocation

    Research prepared for the Financial Conduct Authority 1 has shown that the key influence on portfolio performance is likely to be the strategic asset allocation. Economies move in cycles and academic studies 2 have shown that over 90% of a portfolio's performance can be explained by performance of each of the asset classes.

    Therefore, it is essential that the portfolio can be constructed by using the asset classes of equities, fixed income, commodities, commercial property and cash in order to provide a balanced and diversified portfolio to maximise potential growth but minimise risk.

    The objective of this stage is to invest in asset classes which have low correlation, with the aim of smoothing out volatility to maximise risk-adjusted returns. There are 27 different sectors that we can invest into, from gilts to gold shares. Our goal is to preserve your capital by using 'modern portfolio theory' to create a portfolio with an 'efficient frontier' 3.

    Fund Manager Selection

    We use a disciplined framework based on quantitative and qualitative methodologies. We use a combination of the rating agencies, peer reviews, coupled together with fund manager meetings. The aim is to identify the fund managers that offer the best potential in each sector.

    To spread risk within each sector we select from a range of different fund manager styles, e.g. value or growth. As each fund management group tends to pool research, we also spread risk across sectors by using a number of fund management groups. The overall aim is to create a diverse best-of-breed blended portfolio per sector.

    Each fund manager can invest into upwards of 16 shares; typically however the number of shares per fund is around 100. We allow the fund managers to use their expertise and fundamental research to determine the individual share selection.

    Using a sporting analogy, it's like selecting a national squad using the best players from England, Scotland, Ireland and Wales.

    Portfolio Composition

    There are 5 model portfolios to cater for differing client needs. The composition is therefore different for each model. For example, the cautious world growth model uses a 'core and satellite' approach. Typically 2/3 is invested in developed counties and small percentages are invested in a wide range of sectors which have the potential to grow at a faster rate.

    A typical growth model portfolio could invest into 20 sectors, each with an average of 2 funds per sector. Therefore, the portfolio risk could be spread over approximately 40 funds, with each fund having 100 shares.

    We use the most appropriate provider's platform to satisfy your needs as each provider's solution has different characteristics and charges. But in all cases each fund holding is held in your name.

    Active Tactical Asset Allocation

    Inefficiencies exist within and between markets. Sometimes small cap stocks will out perform large cap stocks; and due to differences in the economic cycle, interest rate differentials will be different between markets. Research 4 found that using tactical asset allocation to over or under weight between sectors, could account for almost 60% of the difference in returns between funds which used tactical asset allocation against funds with static strategic asset allocation.

    Therefore, it is important that the portfolio is actively managed to switch between the assets classes and individual sectors. The aim is to be fully invested but when the markets are not trending upwards the portfolio may have a higher percentage in fixed income or cash to reduce risk even further.

    Monitoring

    We actively monitor and review the macroeconomic environment and relationship between markets to deduce the most likely asset classes and individual sectors to outperform. We also perform inter-market technical analysis on each of the sectors to identify if a trend is changing. If a sector breaks through a technical support level, we may take profits and switch into the safety of cash.

    We also monitor the fund mangers, as research from the WM Company has showed that over the past 20 years, 82% of active fund managers failed to beat the benchmark FTSE All Share Index. Also M&G research showed that only 33% of fund managers were managing the same fund after 3 years, which equates into a manager leaving every day. Also Skandia research found that none of the top 50 funds between 1995 & 2000 were in the top 500 between 2000 & 2005. Therefore, monitoring the performance of the fund manager is also crucial to the growth of your wealth.

    1 Charles River Associates, 2 Brinson, Hood and Beebower, 3 Markowitz and Sharp - best growth for a given risk, 4 Ibbotson and Kaplan.

    +44 (0)20 8715 4004   info@unbiasedfa.co.uk   37 Dorset Road, Merton Park, SW19 3EZ

    Unbiased Financial Analysis (UFA) is a trading name of Unbiased Financial Group LLP. which is authorised and regulated by the Financial Conduct Authority no 726137. Terms and Conditions. Site developed by TC Designs