Followers of Big Picture investing
October 1st, 2010
They say imitation is the sincerest form of flattery. In the last two weeks two competitors have announced new funds that use Exchange Traded funds to implement their asset allocation choices. Others are coming to our conclusion that in the brave new world of the Retail Distribution Review Independent Financial Advisers will like the lower costs and simplicity of choosing a suitable fund from a range of funds offering different degrees of risk, leaving the investment management to an investment house which specialise in choosing sensible assets. The same approach makes sense for charities, families and pension funds.
The technicians and experts now recognise this approach. They call it dynamic asset allocation with passive implementation. We call it Big Picture investing. Concentrate on deciding how much to have in shares, and bonds and property. Implement your choice by buying into low cost index tracking products that give you exposure to emerging market shares or western property.
It should mean you pay less in fees and charges. You can change your mind and get out of any of your investments in a matter of minutes when the main markets are trading. Sell out of asset classes if they become too dear or if a major threat appears to their value.
So how should you choose between the different companies now offering this service? The first question is to ask how much does the manager himself charge for his part of the service? The second is what is his track record like at managing these types of funds? The third is, does the manager offer to change the asset allocation whenever need arises, or does he only say he will change it monthly or yearly? If the latter, why would his review date coincide with events and prices that make changing the assets then a good idea?
We have been running money for clients using the Big Picture approach for more than two years now. Our first charity to join us has produced a strong return to the end of August 2010, starting with us on 15th July 2008. Our first discretionary private client joined us on 21st July 2008 and following good performance, has invited other members of the family to invest with us. Both funds have had a good September on the preliminary figures.
By keeping the funds wholly or largely in cash in 2008 we made positive returns in a bad year. By moving them into a mixture of corporate bonds and equities for 2009 we achieved good positive returns in a good year, 2009. This year we moved more of the money into bonds and property, taking profits on some shares and taking them out of commodities where we had a modest low risk investment during 2009. This has produced a good overall positive return.
We do not aim to make a large number of changes in normal times. We do make big changes if we think there are big threats to investments. Looking at the asset allocations we have set, we have gone from 100% cash to fully invested. More recently we have changed the balance to make it more cautious after making good gains on share markets. We are not trying to be traders or to spot the hottest market for each month or quarter. We are trying to protect client assets against bad downturns, and to buy good value assets that can meet the client requirement to beat wage inflation over the medium term.
We think the Big Picture approach is the best way to keep down costs and concentrate on what matters. We don’t think you can just rebalance your fund at specified dates, but have to be prepared to move any time. You should only move occasionally, when you really need to. We welcome more competitors who share some of our approach. None we have seen so far offers exactly what we offer, and we look forward to talking to more potential clients whose interest may have been awakened by the spread of more of the features of Big Picture investing to other investment houses.
