Category Archives: Investments

Ethical Investing – What do you Need to Know?

With issues such as global warming, recycling, the environment and cancer affecting so many of us in our everyday lives, the ethical and public health agenda is now far beyond being the domain of a small minority of ‘activists’, having become virtually mainstream in today’s society.

The proliferation of information surrounding these issues online and via social media has further brought them to the fore and as a result, there’s now a growing swathe of conscious consumers out there who actively seek out ways to make positive decisions about what to buy and where to buy it from.

In line with this, the financial advisers here at Gresham have certainly seen an upturn in the number of clients requesting a more ethical approach to their investments over the past couple of years.

Ethical investing is an investment strategy which seeks to consider both financial return and social good to bring about a social change. Specifically, it is a method of investing that considers the social impact on people and the sustainability of the environment and will discount stocks from industries such as alcohol, tobacco and oil production, animal testing and armament firms.

But is there a conflict between ethical investing and achieving healthy investment returns from your portfolio? Or does ethical investing just require a bit more thought and planning? Here we discuss some of the factors you need to consider in relation to ethical investments.

Choice of funds

One of the main things to consider in relation to ethical investments is the reduced choice of funds that will be available for investing into. Some ethical or ‘green’ funds take a very restrictive approach to investing and as such, clients going down this route may lose out on the gains seen in some potentially lucrative markets. For example, by choosing not invest in tobacco company stocks, which have shown strong investment returns over the last 12 months, it may be that your portfolio produces lower returns, compared to a portfolio that did. Whilst this may be a moral standpoint that you are happy to take any potential hit on, it is important to be aware of this from the outset so you can weigh up the strength of your feelings against your desire to see the best possible returns on your investment portfolio.

Exposure to market volatility

Whilst ethical investing does reduce the variety of funds available for investment, this doesn’t inherently mean that the outcome will be any less favourable. In fact, due to the volatility in the oil market over the past 18 months, some ‘ethical’ funds have actually outperformed other indices. For example, based on investment performance over the past 3 years, a typical ethical fund had returned circa 32%-35%, compared with 28% for the FTSE All-Share index and 24% for the AFI Balanced index, which is based on financial adviser fund recommendations. (NB These figures refer to the past and that past performance is not a reliable indicator of future results).

Are all ethical funds truly ethical?

One of the trickier aspects of planning an ethical investment portfolio is performing due diligence on the underlying companies held within a fund. Certain funds are ‘greener’ than others and even some financial institutions that you hold ISAs or bank accounts with, along with pension companies or even your workplace pension provider, could in fact be investing money into areas you would rather not support. Although controlling who you give your money to directly is easy to manage, matters become much harder when your money is put into the hands of third parties.Even so-called ‘ethical’ providers may not be as ethical as you might expect and there have been some instances brought to light in which customers are failing to get the green/responsible investment they thought they’d signed up for.

Short of spending hours of your time researching and contacting all of the financial institutions you are involved with, and thereafter moving your funds to those with a more favourable approach, there isn’t an easy way to address this. The financial advisers and technical research team at Gresham Wealth Management have a great deal of knowledge and insight into the ethical stance of funds and can therefore ensure that clients’ wishes in relation to ethical preferences are followed.

With a growing number of people taking a stance on environmental and other issues of public concern, it seems that ethical investing is only set to develop as a way of approaching stocks and shares investments.  Gresham Wealth Management have an ethical investing questionnaire that seeks to ascertain a client’s preferences in relation to investing, and in particular, the strength of their ethical stance on a number of key issues of concern.

For further advice or assistance in relation to ethical investing, Gresham Wealth Management’s team of IFA’s will be happy to assist. Contact us here.


NB The value of your investments can go down as well as up, so you could get back less than you invested.



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Financial Planning – Understanding Risk and Reward

When we first meet with a prospective client it is important to gain a complete understanding of their financial goals and what they hope to achieve through financial planning.  As part of this process, we will need to discuss a wide range of subjects with an individual/couple, covering their income requirements, what other objectives they may have and the extent to which they want to provide for other family members both during their lifetime and beyond.

One of the key aspects of financial planning is determining a client’s Attitude to Risk and Capacity for Loss. Attitude to risk is defined as a client’s willingness to tolerate swings in the value of their investments for the prospect of increased returns. Capacity for Loss indicates a client’s ability to absorb short term losses for the prospect of increased returns. Capacity for Loss is closely linked to a client’s ability to earn income and their overall asset position.

Whilst we would all like to greatly increase the value of our wealth with little or no risk, this isn’t a realistic possibility. When it comes to investments there will always be a level of risk involved – even in everyday savings vehicles such as pensions or ISAs.

Overall risk increases as you begin to look at stocks and shares investments. Here are four considerations that should be made in relation to risk when putting together an investment/wealth management plan.

Short vs long term approach

The stock market is an extremely volatile environment and the value of stocks and shares can increase or decrease dramatically overnight depending on an almost endless number of events and scenarios. Timing markets over a short period of time is very difficult and extremely risky.  A long term approach is preferable as over time the stock market tends to reflect the overall growth and productivity of the economy. Taking a long term approach to investing in the stock market is therefore something we would recommend to all clients – no matter their attitude towards risk.

Finding the balance

Part of the role of a financial adviser is to build an understanding of a client’s Attitude to Risk & Capacity for Loss such that they can create a portfolio that effectively balances the amount of risk the client is willing and able to take with their return aspirations. In general terms, there are four main investment asset types – cash, bonds, property and stocks and shares. Any investment portfolio will consist of a range of investments across some or all of these asset types.

Investors with an Adventurous Risk Profile (indicating a less averse Attitude to Risk and high Capacity for Loss) will likely end up with a portfolio that is more heavily weighted in stocks and shares than in cash. For clients with a Cautious Risk Profile (indicating a lesser Attitude to Risk and lower Capacity for Loss), advisers would propose a portfolio with a much lower level of associated risk.

Each and every client will have a slightly different combination of each depending on their risk profile and the various other variables that make up their overall attitude.

Realistic expectations

Whilst most clients understand the concept of ‘the greater the risk, the greater the potential reward’, the issue comes where there is discord between perceived risk and expectations.  From the outset, the financial advisers at Gresham will present a realistic set of scenarios, each with a different level of associated risk.

Review and monitoring

Attitude to risk and Capacity for loss can change over time – sometimes due to life events or simply a change in attitude as one gets older. As such, it is important that risk is reviewed on a periodic basis to ensure that portfolios stay aligned to clients’ attitudes and situations.

For more information about our approach to dealing with new clients or to arrange an initial conversation with one of our Independent Financial Advisers to discuss your wealth management strategy, please get in touch.


NB. The value of investment can fall as well as rise. You may not get back what you invest.




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What Does the Interest Rate Cut Mean for Savings and Investments?

In a highly anticipated move, last week the Bank of England (BoE) cut the base rate by a quarter of a per cent to 0.25%. Prompted by the outcome of the EU Referendum, the latest monthly meeting of the BoE’s Monetary Policy Committee resulted in the decision to make the rate cut – the first since 2009.

Here we look at the impact the rate cut will have and the long term prospects for savers and investors.

Depending on your position, last week’s announcement will likely have been met by one of two reactions – despair if you’re a saver with a large amount of cash reserves or perhaps a glimmer of hope if you have a large mortgage to pay or are looking to invest further in property over the coming months.

The rate cut was highly anticipated; in fact some commentators had predicted that the cut would come last month, immediately after the referendum result. What is clear from the BoE’s decision is that an environment of low interest rates is here to stay for at least the mid-term, and potentially for the long term. Some analysts are predicting that rates will fall further over the coming months and could remain at or close to zero, or perhaps even into the unchartered territory of negative base level rates, for the rest of the decade.

It is expected that the rate cut will filter through to banks and we will start to see a reduction in interest rates on savings accounts. This is particularly bad news for those savers with the majority of their investable funds in cash. Even prior to the base rate cut the average interest rate for ISA savers was below 1%, representing a poor potential return in anyone’s book, but particularly if you rely on income from savings.

It is for this reason that some financial analysts are predicting an increase in the number of savers moving their funds away from the low interest rate environment of the banks into the world of stocks and shares – an area that some savers have traditionally been wary of.

Stock market returns have vastly outweighed interest rates in recent times and the base rate cut signals the continuation of this position. Although the worlds’ stock markets can fluctuate off the back of political, business and economic news, it is still possible to achieve around 3% – 4% per annum of income from investment funds in the UK. In addition to the income (which is variable and not guaranteed) you also have the potential for capital growth from the investment value itself, although this can also go up and down.

If entering into the markets for the first time, we advise investors to consider diversifying their asset allocation across a variety of different low correlated asset classes and geographical regions to help reduce the overall level of risk. The right blend of assets means that over time, the peaks and troughs of their performance should balance out and effectively smooth the investment returns over the longer term.

One of the main reasons savers avoid stocks and shares investments is the risk to their capital. The value of the investment can fluctuate on a daily basis and is not guaranteed. For this reason alone, those investors with a particularly risk averse attitude might be better placed to leave their savings in other ‘less risky’ environments, such as cash based deposits.

However, the record low level of interest rates, along with the potential for charges being levied on balances held in bank accounts, which has recently been mooted, is understandably leading to a renewed interest in alternative financial planning strategies. Any change to the way you invest your money needs to be viewed alongside your wider financial circumstances as there are numerous factors that might affect the suitability of one investment vehicle over another.

For a review of your current financial planning strategy or to speak to us about putting a revised plan in place in light of the interest rate cut, please contact us.

Gresham Wealth Management is a chartered firm of independent financial advisers. The value of investments can fall as well as rise and you may not get back what you invest.


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The Ups and Downs of the UK Property Sector

The Willis Towers Watson strategic asset allocation model allocates 15% of portfolios into property.

We prefer to invest in direct property funds whose managers own and actively manage a diversified portfolio of UK commercial, industrial, office and retail property investments rather than fund managers that buy and sell shares in property companies.

The core UK property representations in our portfolios are Standard Life UK Real Estate and Legal & General UK Property funds.

Property provides diversification benefits as returns from direct property have low correlation to equities and bonds and can produce smoother longer term returns owing to returns generated from rental income. Property rental income can act as a hedge to inflation as commercial property leases in the UK are often arranged with automatic regular rent review increases. In addition direct ownership of property offers the potential for capital growth as property valuations generally increase over the longer term. Property fund managers can also add value by active management from development or modifying use to accommodate the demands of future tenants. Property should be considered a long term investment of at least 5 years.

Since May 2013 we have observed increased cash flows to UK property funds due to; improved investor confidence, attractive yield and inflation hedge characteristics of this asset class. Increased fund flows have become a concern as fund managers have been under pressure to deploy cash in an increasingly competitive UK property market. Our concern was such that in January 2014 the Gresham Wealth Management investment committee took the tactical decision to reduce property asset allocations with portfolios retaining 10% or 12.5% weighting. Overall, our recommended portfolios do not have large exposures to the Standard Life UK Real Estate and Legal & General UK property funds and we are generally underweight UK property as an asset class compared to other actively managed investment solutions.

Following the outcome of the EU referendum and increased uncertainty in valuations for the UK commercial property market, many UK property funds have announced changes to fund pricing and application of charges as measures to protect existing investors from being disadvantaged by the negative impact of large outflows. For existing investors the impact of Brexit has materialised with a downward price impact in the region of 15% across UK direct property funds.

Property funds often retain large cash balances to manage liquidity however if the fund receives increased redemption requests from investors the fund manager may be forced to sell properties when market valuations may be suppressed and do not necessarily reflect the true intrinsic value of the property. Transactions often take considerable time to complete and incur sizeable costs on the sale and purchase of commercial properties.

On 4 July 2016 Standard Life announced withdrawals would be suspended from the UK Real Estate fund. This restriction will be reviewed by Standard Life every 28 days on an ongoing basis. Subsequently other leading UK property fund management teams including Aviva, Henderson, M&G, and Threadneedle suspended trading in their property funds.

At time of writing, Legal & General has not suspended trading in the fund. This is subject to ongoing daily review. We do not recommend that investors should sell holdings in Legal & General UK property fund at this time.

For existing Gresham Wealth investors the implications are as follows:

  • Since 23 June 2016 valuations in the Standard Life UK Real Estate fund and Legal & General have reduced by 5% and 10% respectively.
  • For investors taking regular withdrawals or making regular contributions, investment instructions will be reviewed and changes made to ensure continuity of income payments and standing instructions for regular premiums are suitable. We will be contacting investors affected to recommended changes to existing investment instructions.
  • Investment portfolio reviews will be impacted as property funds cannot participate in the rebalance.

It is with reluctance that we recommend that no further monies should be invested into UK property funds until liquidity issues have receded and the funds are fully tradeable / accessible. Consequently we recommend increased allocations to ‘cash’ as a short term (< 12 months) investment strategy. It should be noted that cash deposit rates are not attractive in the current low interest rate environment and retaining large cash balances for long periods should be avoided as higher anticipated inflation will significantly erode the real value of your investments over the medium to longer term.

We are confident in our belief that UK property funds and the managers we recommend will continue to deliver attractive returns for longer term investors.

For further advice please do not hesitate to contact us and speak to one of our chartered financial advisers.

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