Welcome to the Spring 2023 Finance Shop Wealth Management (FSWM) Quarterly Review.
The Finance Shop Quarterly Review provides clients in our Advisory Portfolio Management (APM) service a review of the financial world over the last three months, and how this may have affected their pension or investment. If you would like to read more about this service, please Click Here.
A key part of the reporting is the colour coding. Each FSWM portfolio is colour coded to enable you to spot which category applies to you. The relevant information is then presented in a clear and easy to understand way. However, if you require any further clarification, please do not hesitate to get in touch.
MARKET OVERVIEW - QUARTER ONE 2023
The first quarter of 2023 was anything but straightforward, albeit initially there was little sign of anything untoward. The rapid reopening of China, coupled with milder weather conditions across much of Europe and the wider Northern hemisphere, combined to help confidence and boost economic data. In turn, markets believed the narrative that this could allow developed world economies to escape recession, and as a result interest rates to fall sooner. In February however, sentiment soured as strong jobs data, combined with stubborn inflationary numbers, led central bankers to guide towards interest rates going higher, and staying higher for longer. Whilst equity markets ebbed and flowed it was in the bond market (government and corporate borrowing) which saw the real volatility. January was one of the strongest for bond market returns on record, whilst February was the worst on record, and this in a market which is supposed to be calmer and more predictable than equities.
Those hoping for some respite in March were disappointed. Silicon Valley Bank’s collapse sent shock waves through financial markets. Share prices for many of the regional banks in the US came under pressure, as depositors moved money to bigger banks. Despite regulators stepping in quickly, to provide support and reassurance, this could not prevent wider contagion, which saw the eventual demise of Credit Suisse. Credit Suisse had suffered a protracted period of difficulties, and whilst there appeared a credible plan to address these issues, the bank ran out of time. The Swiss National Bank and the Swiss financial regulator came together to engineer a merger with its larger rival Union Bank of Switzerland (UBS). Markets remained jittery for some days, however continued reassurance from regulators and central banks, appeared to boost confidence sufficiently to end the quarter with much improved poise.
Looking ahead, it is difficult to believe that we won’t see further periods of heightened volatility during 2023, as the impact of higher interest rates wash through the economy. That said, the medium term outlook should brighten as interest rates peak, inflation subsides and recessionary concerns are fully priced in.
FSWM PORTFOLIOS - QUARTER ONE 2023 PERFORMANCE
The graphs below show how the FSWM portfolios within the four Finance Shop risk categories have behaved over the last three months. The first graph shows the total return for the quarter whereas the second graph illustrates the “month by month” performance. The performance figures are aggregated so, for example, the green bar is made up of all the FSWM Multi-Asset Balanced portfolios across all product types. If you require specific performance figures for your plan, please contact your adviser.
PERFORMANCE REVIEW
Despite a very varied quarter all of the portfolios delivered positive returns. Better economic data and a belief that interest rates are reaching their high point, has helped improve sentiment. We continue to believe that conditions warrant a broad balance of assets, with a focus on quality.
FSWM PORTFOLIOS - ASSET ALLOCATION
There are six portfolios in the FSWM range, four growth and two income which are detailed below. Your FSWM pension or investment will be invested in one of these categories. The tables show the aggregate composition of the portfolios with some figures to show the potential risk and return of each category.
GROWTH PORTFOLIOS
INCOME PORTFOLIOS
There are two income portfolios which aim to produce an income within a target range as highlighted in the table below. The two portfolios cover the Cautious and Balanced Finance Shop risk categories.
FSWM PORTFOLIOS - LONGER TERM PERFORMANCE
The first graph below shows how the FSWM portfolios have performed over 12 months. For comparison, the returns of cash (MoneyFacts 90 days notice 10K) and inflation (UK Consumer Price Index) are also shown. As with the Cumulative & Discrete Performance graphs, the figures for each category are aggregated.
The second graph illustrates how the portfolios have performed since launch (1st November 2008).
FSWM FUND REVIEW POLICY
A key part of the FSWM service is to monitor the underlying performance of each fund within the portfolios for both risk and return. We have selected quality funds with strong track records and therefore do not envisage a high turnover of holdings. However, there will be occasions when the performance of an individual fund will lead to its expulsion from the portfolio(s). There are a number of factors that determine this decision, for example consistent under-performance, change of management team etc. It is also important, however, to have patience with a fund that is just suffering short-term under-performance.
We operate a “traffic light” system and will move a fund from a “green” to “amber” rating if the fund requires closer scrutiny at the next review. If a fund shows sufficient improvement, it will move back to “green”. If the fund consistently underperforms without good reason its status will change to “red” and the fund will be removed from the portfolio(s). A replacement fund will be selected and all clients holding the fund within their portfolio will be notified. Upon receipt of their authority, the client’s funds will be switched accordingly.
RESULTS OF THE FUND & ASSET ALLOCATION REVIEW
The Investment Committee meets on a quarterly basis and one of its primary functions is to review our existing fund range. Within this meeting we scrutinise any funds which we feel are performing significantly differently to their peer group or benchmark, with a number then run against our internal performance and risk measurements.
The funds under review are as follows:-
- ASI Europe
- Ardevora UK Equity
- Blackrock European Dynamic
- Downing Unique Opportunities
- JP Morgan Multi Asset Income
- Jupiter European
- Miton UK Value Opportunities
- Unicorn UK Income
- Vanguard Global Credit
ASSET ALLOCATION TABLES - IMPORTANT INFORMATION
The maximum quarterly gain and loss figures in the asset allocation tables above are taken from FE fundinfo based on the last 56 quarters of the longest running FSWM portfolios (up to February 2023). For the income portfolios, the figures are based on 38 quarters.
FE Risk Score: FE fundinfo have introduced FE Risk Scores to provide a single, easy to understand measure of risk across a range of investments. In the UK, Risk Scores measure the riskiness of any given investment in relation to the FTSE 100. Weekly volatility is measured over up to 3 years, with recent behaviour counting more heavily than earlier behaviour. The Risk Score is calculated weekly, and can be tracked over time. Cash type investments will have scores near zero, investment funds will tend to have scores in the 0 - 150 range.
The FTSE 100 is always 100. There is no upper limit to the scores.
The asset allocation figures are aggregated based on the current holdings within the FSWM portfolios for a new investor as at 1st February 2023. They will vary on a daily basis subject to market fluctuations. Rebalancing will be recommended if equity content exceeds the benchmark maximums. There is no guarantee that any of the model portfolios above will achieve their stated objectives. Each model portfolio may also experience more or less volatility than expected. The value of investments will fall as well as rise and are not guaranteed. Past performance is no guide to future performance. The Finance Shop Risk Categories are graded from 1 to 7. The above portfolios cover categories 3 to 6. For further information on all categories, please speak to your Finance Shop Independent Financial Adviser.
ADDITIONAL IMPORTANT INFORMATION
This report has been issued by the Investment Committee of the Finance Shop Wealth Management team using data provided by FE fundinfo. Care has been taken to ensure that the information is correct but FE fundinfo and Finance Shop neither warrants, represents nor guarantees the contents of the information, nor does FE fundinfo or Finance Shop accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein.
Past performance is not a guide to future performance. The value of investments and the income from them may go down as well as up and investors may not get back the amount originally invested. Currency fluctuations can also affect fund values. The above report does not constitute advice and you should speak to your Independent Financial Adviser before you make any alterations to investments or pension plans.
The instruments recorded above are weighted model portfolios created using FE fundinfo Analytics. Performance figures shown are based on the weighted models and may differ from the actual returns achieved by investors. Performance figures shown are based on bid to bid gross returns and do not include plan, contract or ongoing adviser charges / commission. Please refer to your policy documentation for further details.
FE fundinfo (UK) Limited Registration number: 2405213. Registered office: Address: 3rd Floor, Hollywood House, Church Street East, Woking, Surrey, GU21 6HJ. Telephone 01483 783 900. Website www.fefundinfo.com
Finance Shop is a trading name of Finance Shop Limited. Company Number 07535053. Registered in England. Registered Office: North Wood Place, Octagon Business Park, Little Plumstead, Norwich, Norfolk NR13 5FH.
Finance Shop is authorised and regulated by the Financial Conduct Authority.
ABOUT FINANCE SHOP
Formed in 1990, Finance Shop has grown to become one of the region’s leading firms of Independent Financial Advisers.
As a locally owned, genuinely independent company, we pride ourselves on the quality of our advice and service to both personal and corporate clients. With over 150 years of financial services experience within the firm and over half a billion of assets under management, we have the expertise, experience and knowledge to be able to advise on all aspects of financial planning.
Our belief is that access to quality, independent advice is more important than ever and that is why we spend the majority of our time face to face with new and existing clients, explaining the key issues of today and helping them plan for the future.