Intelligent Money - your investment questions answered

[anonymous-user]

Intelligent Money said:

Our Private Client proposition is basically saying pay a bit more than the absolute cheapest option (or a lot less than an advised option) for a fully managed service with full support.

With total costs 0.87% it merits consideration as a middle road between the extremes of, say, 0.4% and 1.78%. You indicated that more performance history will be available next week and I think it will be interesting to see what emerges.

To my mind it's often easier for an investor to "save 1% p.a." by minimising what's spent on advice than it is to "make 1% p.a." by chasing additional investment return.

[Derek Chevalier]

Intelligent Money said:

He could certainly buy trackers for peanuts but he would have to manage his asset allocation and rebalance this himself.

Alternatively he could pick a global tracker - if he is happy to have his holding blindly mirror their market capitalisation with no discretion to take into account economic, political or market sentiment at the time. We evaluate this daily.

Nik

If the investor were to purchase something like Vanguard Lifestrategy (although arguably not "optimal" as it still has a bias towards UK) it would save him having to manage asset allocation and rebalancing.

Some would argue (similar to the discussion regarding outperforming fund managers) that no one is able to predict what will happen to the markets due to economic, political or market sentiment any better than chance, and looking at the 5 year risk adjusted performance of LS vs a huge number of alternative offerings for the last 5 years to the end of Q4 2018, it's very hard to disagree.

[HIAO]

A few questions regarding the investment portfolios;

- Does the portfolio hold physical gold, or ETFs?

- Are the non-UK equities hedged and what is the hedging impact?

- For the UK equities, how much of their exposure is in non-UK markets?

- For all the portfolios performance, why do the tables stop at 30 September 2018?

Can you share fact sheets about the portfolios.

Thanks

[Derek Chevalier]

rockin said:

To my mind it's often easier for an investor to "save 1% p.a." by minimising what's spent on advice than it is to "make 1% p.a." by chasing additional investment return.

For the vast majority of private investors I would suggest their returns if they engaged with an adviser, while still not matching the market (drag due to fees) would underperform less than if they did it themselves.

An adviser may have access to offerings that aren't available to private investors (Dimensional etc) that (arguably) provide a superior offering than the the individual could access themselves, but that's a different discussion

[Intelligent Money]

Ayahuasca said:

I see that some blue chip shares e.g. HSBC and Glaxo are yielding over 5% (latest dividend as a percentage of current share price). What is the likelihood of their dividend being maintained?

bhstewie said:

Nik,

What's your view on "dividend investing" v simply investing in good companies please?

I'm simplifying massively but the "any dog that pays 4%" v the Terry Smith point of view of buy good companies and take what you need when you need it.

Hi guys, I hope you don't mind that I have lumped these questions together as they are essentially the same thing.

I personally like dividend investing (or Equity Income) based upon the premise that companies often increase their dividend to attract investment when the share price falls and then reduce the dividend when the share price strengthens.

A good fund manager (or individual investor) is therefore able to buy value stock with high dividends and will sell this stock for a profit when the dividend falls. It's the best of both worlds. In theory.

Getting this right is a slightly different matter though!

William Littlewood pretty much gave a master class on this approach when he ran Jupiter Income (an equity fund).

So, what is the likelihood of current dividend yields being maintained? It depends on many things, individual corporate fundamentals, market sentiment, currency pricing (particularly for FTSE 100 companies), even politics and interest rates.

The best answer I can give (as I don't have a crystal ball) is to give you my personal thoughts and position. Would I adopt this investment approach? Yes, I both would and do. High dividends are a great bonus and an insurance against capital (share price) falls whilst still giving the potential for capital growth (albeit at a potential reduction in future dividend yield).

However, I would make this part of an investment strategy, not all of it. The foundations should be globally diverse holdings generating a mixture of growth and income from different asset classes. There is absolutely nothing wrong whatsoever by complimenting this with a high dividend (equity income) holding or a growth focused holding. Out of the two, I prefer the high dividend approach (but that does not make it better than the alternative!).

Great questions guys, please pick me up if I didn't answer it fully.

Regards

Nik

[Intelligent Money]

rockin said:

Intelligent Money said:

Our Private Client proposition is basically saying pay a bit more than the absolute cheapest option (or a lot less than an advised option) for a fully managed service with full support.

With total costs 0.87% it merits consideration as a middle road between the extremes of, say, 0.4% and 1.78%. You indicated that more performance history will be available next week and I think it will be interesting to see what emerges.

To my mind it's often easier for an investor to "save 1% p.a." by minimising what's spent on advice than it is to "make 1% p.a." by chasing additional investment return.

I wouldn't class 1.78% as an extreme. We regularly see advised models around the 3% per year mark.

I agree with your point though. We are not trying to be all things to all people. For some the DIY platform approach is best and for others the advised approach is the best. We offer a solution for those who sit between or are not comfortable with where the currently sit.

Our most popular portfolio (Global Growth) returned just shy of 10% annualised average return over the last 5 years to 30th September. Obviously market movements since then will impact on this, as is to be expected. These returns consisted of a 47% three year return and a 60% five year return.

I'll post the updated figures next week, together with the relevant (that is to say correct, not flattering) benchmark returns.

Regards

Nik

[Intelligent Money]

Derek Chevalier said:

Intelligent Money said:

He could certainly buy trackers for peanuts but he would have to manage his asset allocation and rebalance this himself.

Alternatively he could pick a global tracker - if he is happy to have his holding blindly mirror their market capitalisation with no discretion to take into account economic, political or market sentiment at the time. We evaluate this daily.

Nik

If the investor were to purchase something like Vanguard Lifestrategy (although arguably not "optimal" as it still has a bias towards UK) it would save him having to manage asset allocation and rebalancing.

Some would argue (similar to the discussion regarding outperforming fund managers) that no one is able to predict what will happen to the markets due to economic, political or market sentiment any better than chance, and looking at the 5 year risk adjusted performance of LS vs a huge number of alternative offerings for the last 5 years to the end of Q4 2018, it's very hard to disagree.

Hello Derek

I did put this point forward (above). Buying this investment is certainly great value, but there is (as you point out) no discretion as to asset allocation.

That is what we add.

Some certainly may argue that no one is able to predict what will happen in the future. They would be completely correct in doing so.

However, a qualified and experienced team of people who do this for a living have a better chance of making the right calls that the average person on the street.

I certainly do not wish to appear antagonistic in the slightest (not least because I have just found out you know my boss! ) but you you are very forward in stating that stock selection and asset allocation does not add any value, whilst equally saying (as a financial adviser) that financial advice does (several multiples).

I would argue that each can, and some do whilst others fail. This is a balanced an equal viewpoint. Your position appears to be that no value can be added other than the service you offer (financial advice).

Maybe I have misinterpreted what you are saying, but I imagine others reading this have too, which doesn't help your cause. Please correct me if I am wrong.

Regards

Nik

[Intelligent Money]

HIAO said:

A few questions regarding the investment portfolios;

- Does the portfolio hold physical gold, or ETFs?

- Are the non-UK equities hedged and what is the hedging impact?

- For the UK equities, how much of their exposure is in non-UK markets?

- For all the portfolios performance, why do the tables stop at 30 September 2018?

Can you share fact sheets about the portfolios.

Thanks

Hi HIAO

We have several different portfolios each with different asset weightings, so your questions are not straightforward to answer.

1) Yes, to varying degrees and usually as a hedge.

2) My understanding is that all overseas exposure is GBP denominated, so no hedging is involved. I'll as Tim Horrocks, our investment manager, in the morning if he utilises and other for of hedging and get back to you on this.

3) That is a question I would have to refer on. Our UK equity exposure is large cap, so it would follow that the underlying market exposure is global.

4) Because our Fact Sheets are updated quarterly and the holidays have cause a delay. This is annoying as our clients get live daily feeds, but this in for their own accounts, not all portfolios over set time frames.

I don't think I can (but will ask if it does not break forum rules to) share the Fact Sheets here, but anyone can visit our website and download them:

https://www.intelligentmoney.com/private-clients/o... - for digital ones, or;

https://www.intelligentmoney.com/about-us/literatu... - for PDFs

Regards,

Nik

[Derek Chevalier]

Intelligent Money said:

We regularly see advised models around the 3% per year mark.

Nik

Unfortunately too often

Edited by Derek Chevalier on Sunday 13th January 17:15

[Derek Chevalier]

Intelligent Money said:

However, a qualified and experienced team of people who do this for a living have a better chance of making the right calls that the average person on the street.

If the average person on the street attempted this themselves, then yes, agreed, it probably would give a suboptimal outcome (although I expect asset allocation will come second to "shall I put my money in Fundsmith or Lindsell Train" ).

However, if the same person on the street accepts his limitations and puts in his money into Vanguard LS (for example), then that's a different discussion.

Intelligent Money said:

I certainly do not wish to appear antagonistic in the slightest (not least because I have just found out you know my boss! )

This is Pistonheads - it wouldn't be PH if there weren't lively debates

Intelligent Money said:

but you you are very forward in stating that stock selection and asset allocation does not add any value

I consider myself strongly evidence based, so base my views on where the evidence takes me (and 100% ensuring that I retain an open mind).

For stock selection, I think in past times, when less was known re where returns (in addition to market beta) came from (and markets were (IMO) less efficient), alpha was potentially achievable - today I'm not so sure - e.g. it's possible to work out what is driving a superstar fund manager's (apparent) excess returns and buy cheap factor funds to replicate it (if that is what you really want).

https://www.aqr.com/Insights/Research/Alternative-...
https://www.amazon.co.uk/Incredible-Shrinking-Alph...

Regarding asset allocation, for someone to provide returns over a cheap tracker offering, they need an edge over the average participant in the market (to cover their costs, and then hopefully provide an excess return). Personally I think this is exceedingly difficult as there are lots of equally intelligent people trying to do the same thing - what's their differentiator?

As I mentioned I see the quarterly numbers vs LS and I have seen very little that has beaten it (especially after Q4 2018). But as I said, I always have an open mind.

That's not to say someone can't have an edge in certain areas of the market - for example stat arb firms utilising pairs trading strategies, but you need a team of extraordinarily intelligent people, market knowledge (down to order book level) and massive computing power, and sometimes all that isn't enough.

Intelligent Money said:

Your position appears to be that no value can be added other than the service you offer (financial advice).

I think with the right type of (initial and ongoing) advice (which isn't seeing your client once a year to discuss their portfolio - which unfortunately happens far too often) there is enormous value to be had in helping people to achieve their objectives, for example "I'm sick of my job, when can I retire"? Fund selection/asset allocation etc. is way, way down the list in order of priorities for delivering that client what he/she desires, IMO.

Apologies if I'm sounding harsh, as I think you chaps have a great offering, and as we both know, there is so much substandard rubbish out there.

[Lemming Train]

Intelligent Money said:

BTW, for those that do not know, Intelligent Money is owned by a quite active PHer

Who is this out of interest? A search hasn't turned up much although I note a member called JulianPH mentions Intelligent Money in nearly every other post so could it be him?

[Intelligent Money]

Derek Chevalier said:

Intelligent Money said:

However, a qualified and experienced team of people who do this for a living have a better chance of making the right calls that the average person on the street.

If the average person on the street attempted this themselves, then yes, agreed, it probably would give a suboptimal outcome (although I expect asset allocation will come second to "shall I put my money in Fundsmith or Lindsell Train" ).

However, if the same person on the street accepts his limitations and puts in his money into Vanguard LS (for example), then that's a different discussion.

Intelligent Money said:

I certainly do not wish to appear antagonistic in the slightest (not least because I have just found out you know my boss! )

This is Pistonheads - it wouldn't be PH if there weren't lively debates

Intelligent Money said:

but you you are very forward in stating that stock selection and asset allocation does not add any value

I consider myself strongly evidence based, so base my views on where the evidence takes me (and 100% ensuring that I retain an open mind).

For stock selection, I think in past times, when less was known re where returns (in addition to market beta) came from (and markets were (IMO) less efficient), alpha was potentially achievable - today I'm not so sure - e.g. it's possible to work out what is driving a superstar fund manager's (apparent) excess returns and buy cheap factor funds to replicate it (if that is what you really want).

https://www.aqr.com/Insights/Research/Alternative-...
https://www.amazon.co.uk/Incredible-Shrinking-Alph...

Regarding asset allocation, for someone to provide returns over a cheap tracker offering, they need an edge over the average participant in the market (to cover their costs, and then hopefully provide an excess return). Personally I think this is exceedingly difficult as there are lots of equally intelligent people trying to do the same thing - what's their differentiator?

As I mentioned I see the quarterly numbers vs LS and I have seen very little that has beaten it (especially after Q4 2018). But as I said, I always have an open mind.

That's not to say someone can't have an edge in certain areas of the market - for example stat arb firms utilising pairs trading strategies, but you need a team of extraordinarily intelligent people, market knowledge (down to order book level) and massive computing power, and sometimes all that isn't enough.

Intelligent Money said:

Your position appears to be that no value can be added other than the service you offer (financial advice).

I think with the right type of (initial and ongoing) advice (which isn't seeing your client once a year to discuss their portfolio - which unfortunately happens far too often) there is enormous value to be had in helping people to achieve their objectives, for example "I'm sick of my job, when can I retire"? Fund selection/asset allocation etc. is way, way down the list in order of priorities for delivering that client what he/she desires, IMO.

Apologies if I'm sounding harsh, as I think you chaps have a great offering, and as we both know, there is so much substandard rubbish out there.

Hi Derek

I think we agree on pretty much most points.

My only contention is you promoting of the value of your contribution whilst not acknowledging the value of our contribution.

This may be a factor in why advisers are (sadly) not trusted. At the end of the day, advisers would have nothing to recommend if it were not for the providers.

I would argue with you - and for you - as to why financial advisers can add great value. You, however, seem prefer to take the position that providers (the companies you recommend) cannot add any value...?

Good people and companies can make a positive difference. I think we should both stand on the side of good people and companies, rather than the adviser/provider debate. What do you think?

Nik

[jeff666]

Lemming Train said:

Intelligent Money said:

BTW, for those that do not know, Intelligent Money is owned by a quite active PHer

Who is this out of interest? A search hasn't turned up much although I note a member called JulianPH mentions Intelligent Money in nearly every other post so could it be him?

A quick Google suggest you may be right.

[Derek Chevalier]

Intelligent Money said:

My only contention is you promoting of the value of your contribution whilst not acknowledging the value of our contribution.

I think the investment management industry has made great strides over the last decade in reducing costs and increasing transparency - the typical private investor can gain access to the market that was once the sole preserve of the institutional investor - I think that's fantastic. An investor can open an ISA with Vanguard, pay 15bps for the platform, 22bps for the fund and have exposure to the globe - very hard to argue against that.

Hopefully people with old school advisers will start to see this and ask "What am I paying an extra 200bps pa for?"

I'm aware that I have a bias towards low cost - this is a starting point for me and every point along the chain - adviser, platform, fund etc must justify their value add, both in terms of their necessity and also justification for paying more than the cheapest (quality) offering. Every pound taken along the way is one less in the client's pocket.

It will be interesting to see if Vanguard start to offer advice in the UK (think it's 30bps for advice)

https://investor.vanguard.com/financial-advisor/fi...

Intelligent Money said:

This may be a factor in why advisers are (sadly) not trusted.

I think the fact that there are too many product floggers out there doesn't help, which brings me on to....

Intelligent Money said:

At the end of the day, advisers would have nothing to recommend if it were not for the providers.

A financial product is merely an instrument that may be required to deliver a plan. Historically far too much focus has been on the product and far too little on understanding goals and objectives and creating a plan to help deliver those. Very difficult to recommend a product, IMO, when you don't have a clear understanding of what the client is trying to achieve.

I've seen some real stinkers - clients (with an adviser) that are very unlikely to ever run out of money yet have a large equity exposure and are constantly fretting about what the market is going to do next. That's a big failing IMO. Peace of mind is (should be) what we offer.

Intelligent Money said:

Good people and companies can make a positive difference. I think we should both stand on the side of good people and companies, rather than the adviser/provider debate. What do you think?

We can definitely agree on this! Companies such as Vanguard and Dimensional put a great deal of resource (of course it's in their interest!) into educating the adviser community which can only improve the offering the advisers then give to their clients.

[DeuceDeuce]

Could you explain your investment processs more fully please? I think your website is quite poor in regard to this. For example:

Who decides the neutral asset allocation for each mandate and using what research/evidence?
How often is the asset allocation reviewed and are tactical changes made?
What freedom does Tim Horrocks have to make asset allocation or implementation changes in the portfolios?
Why Tim Horrocks and Quilter/Old Mutual?
Who monitors portfolio risk and how?
In plain English, what does ‘We combine advanced technology with bespoke discretionary investment management to create 3- dimensional investment solutions’ mean?

Thanks

[Intelligent Money]

DeuceDeuce said:

Could you explain your investment processs more fully please? I think your website is quite poor in regard to this. For example:

Who decides the neutral asset allocation for each mandate and using what research/evidence?
How often is the asset allocation reviewed and are tactical changes made?
What freedom does Tim Horrocks have to make asset allocation or implementation changes in the portfolios?
Why Tim Horrocks and Quilter/Old Mutual?
Who monitors portfolio risk and how?
In plain English, what does ‘We combine advanced technology with bespoke discretionary investment management to create 3- dimensional investment solutions’ mean?

Thanks

Hi DeuceDeuce

I certainly can and will pass on your critical feedback, which we value as it enables us to improve our positioning.

From your questions it appears you have been looking at our Financial Adviser facing website. If you client on Private Clients (on the homepage) your will see our client facing site, which describes things in a more straightforward style.

To address your first 5 points, Tim is our investment manager. He is a Charted Fellow of The Charted Institute for Securities & Investments and a Charted Wealth Manager.

He is responsible for the day to day running of our portfolios and has complete discretion on all aspects of this, but reports regularly to our CEO on his positions and the rational behind them. We also have independent third party governance of each portfolio.

So it is Tim who decides upon the asset allocation mandates and he has the full research, analysis and capabilities of Quilter Cheviot (one of the UK's largest Discretionary Funds Managers) behind his is doing this.

The asset allocation is reviewed daily with tactical changes being made only as and when deemed appropriate. Rebalancing is conducted quarterly.

As I said, Tim has complete discretion to make asset allocation and underlying investment changes to the portfolios.

Why Tim, a combination of his excellent track record of delivering high returns with lower than average volatility and the considerable resource Quilter Cheviot committed to put behind the partnership.

Tim and his team monitor the portfolios and report regularly to our CEO and annually to our third party independent governance committee. As to how all this is done, that is down to market fundamentals, political and policy implications and a host of matters.

Regarding the quote you took from our adviser site, this is in relation to our Target Dated Portfolios (where risk is managed down the closer you get to a target date - retirement, for example. We have one glide path for a lump sum withdrawal and another to a balanced portfolio from which to draw down an income).

Our technology is therefore combined with bespoke discretionary investment management and the management down of risk and volatility as you approach your target date.

As this adds a third element to portfolio management approach someone, many years ago, decided to call this a "3-dimensional" investment solution.

I hope that answers your questions, thanks for asking them.

Regards

Nik

[Intelligent Money]

Derek Chevalier said:

Lots of good stuff...

Hi Derek

I think we agree on most things, principally that people benefit the most from low cost, well managed investment solutions and strong holistic financial planning.

This is precisely what our Private Client service offers, all under one roof.

We also agree that product selling and high charges are a bad thing. This is why we don't do this.

A good adviser can, as you say, do this for 0.87% plus platform and fund costs (so, c. 1.35% all in).

We do this for 0.87% all in, including active asset allocation management, so I'm sure you will agree this is excellent value for clients.

Regards

Nik

[JulianPH]

Lemming Train said:

Who is this out of interest? A search hasn't turned up much although I note a member called JulianPH mentions Intelligent Money in nearly every other post so could it be him?

You cheeky sod!!!

I've just done a search, touching 3,000 posts and I've mentioned Intelligent Money 13 times over the years!

[Intelligent Money]

Derek Chevalier said:

If you look at Vanguard Adviser Alpha study they attempt to put some hard numbers against the areas where a (decent) adviser adds value. See also Royal London's "The value of financial advice", and while you could take these studies with a pinch of salt, in the real world it holds true (as I mentioned, for the right client (which is a whole new discussion!)).

It is a shame (although understandable) that a large percentage of people don't trust advisers.

Hi Derek

I've had the time now to look into this and it makes very interesting reading indeed.

If you look at Vanguard's key points they amount to:

1) Suitable asset allocation using broadly diversified funds/ETFs

2) Rebalancing

3) Lowering costs

4) Tax allowances and asset location

5) A total return approach

6) Holistic financial planning (which Vanguard separate out into behavioural coaching and withdrawal order)

This is a perfect description of exactly what our Private Client service does.

I've passed it over to marketing for consideration.

Many thanks

Nik

[Lemming Train]

JulianPH said:

Lemming Train said:

Who is this out of interest? A search hasn't turned up much although I note a member called JulianPH mentions Intelligent Money in nearly every other post so could it be him?

You cheeky sod!!!

I've just done a search, touching 3,000 posts and I've mentioned Intelligent Money 13 times over the years!

I put in Intelligent Money into search engines and your name comes up for most of them, linked here. Every other post perhaps a slight exaggeration I'll grant you. Are you the man behind this thread then, JulianPH ?