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0121 355 4455
info@oaklandswealth.com
12A Duke Street
Sutton Coldfield
West Midlands
B72 1RJ

Oaklands Wealth Management Ltd

The danger of a Woolie’s Pick ‘n’ Mix approach to investing

Now and then we have enquiries from clients wishing to select some of their own funds.

This is understandable, as there is so much coverage in the press these days about fund choices. And thanks to modern technology, an unfathomable quantity of data is available at the touch of a button.

The fact is, despite best intentions, having an input to your own investment portfolio could seriously damage your wealth.

Let me explain why…

A bewildering array of fund choices

Firstly, with so many choices, there needs to be some system of whittling these down to the ones which will meet your investment objectives.

At Oaklands, you won’t be surprised to learn that we have additional research at our disposal, available exclusively to financial advisors, which we use for our fund selection process.

This information, together with over 75 years combined experience on our investment committee, means we build well researched risk rated portfolios, appropriate to your situation and age category.

When arriving at our working list of funds, we analyse performance ratings from a number of respected sources. We also compare these funds within their peer group.

The definition of peer group in this scenario, is the Investment Association (IA) sector. There are now over 50 sectors as defined by the IA and are compiled on the following basis: “We divide the sectors into broad groups, each with a different investment focus: Growth, Income, Capital Protection, Specialist funds and those with an outcome intention.”

We refer to this process as Benchmarking, under which we look for an acceptable rate of return when comparing funds within their sector. Of course with over 50 sectors, it is imperative to use the correct benchmark for each fund.

You may be surprised to learn there are 4000 funds in the investment universe we could use for your portfolios.

Ultimately, by applying our initial filtering process we arrive at a working list of approximately 1341 possible funds to invest in.

With further filters applied, we then have just over 100 funds which meet our stringent criteria.

Even within each sector, funds will perform at different levels, for a variety of reasons.

There are different investment cycles and depending on where we are within this cycle can result in a wide range of returns from funds in the same sector. This can be due, for example, to the difference in the approach of the fund manager.

As you know, we review our working list of funds on a monthly basis and following on from this review we hold an investment committee meeting to discuss the results of the fund research and put this data into context.

Why the highest performers are not always the solution

We take time to look at the fund management style, objectives and fit of the fund for our portfolios. It is not merely about choosing the top performing fund in the category.

If you were to look purely at this factor you’d be chopping and changing funds on a continual basis. You and I know that is not a long-term strategy. It’s like uprooting the dahlias midsummer just because they’re not growing as tall as the sunflowers.

We dig deep into the analysis of the sectors and companies which make up the funds, get clarity from the fund managers if we’re not certain of their selection rationale, and make a balanced decision on their inclusion into your portfolios.

Some funds are there for defensive reasons – despite not being the highest performers in their peer group. Such selections are sector based decisions where the objective is to deliver a steady rate of return over time, much less dependent on short and medium term market driven circumstances.

History is a great teacher, and even if we cast our minds back to the start of 2020 it is clear nobody was expecting a global pandemic and all the economic shocks which accompanied that.

Had your funds been invested in all the highest performing funds in February 2020, the investment scene was looking quite different just a month later.

I’ll repeat what I have said before on our blog – the funds which today seem to be under performing will often provide the rock on which to build future returns. And at least stem the short-term slides in value when we get such dramatic events. They are positioned with the intent to balance out the funds at more risk of high market volatility.

Back to the Woolie’s pick ‘n’ mix analogy, which all but our youngest investors will recognise. You’ll most likely be mighty fed up if you’ve got too many liquorice allsorts when you actually wanted a mix of fruit salads, dolly mixtures and pear drops.

Let’s just say you ask a friend to pick for you and you give them some thoughts about what you’d like but they come back and disappoint you with their selection. You’ll be left wondering who’s decision it really was when you didn’t get what you wanted.

That’s what would happen if clients were to have an input to the fund selection decisions. It would muddy the water. Our well proven process outlined before would be upturned and all the objective analysis would be out of the proverbial window. And it would be unclear as to where the boundaries lie, who takes the decisions, and most importantly whom is responsible for the results.

Clearly your investments are not so frivolous as a Woolie’s pick ‘n’ mix. My point is we have to stick to our well proven investment process honed since 2004. One which has steered our clients’ investments through the financial crisis recession of 2008- 09 and the more recent Covid-19 pandemic recession of 2020-21.

Interested in finding out more?

Seeking a second opinion on your financial future costs you nothing.

Simply call our friendly team on 0121 355 4455 or drop us an email to appointments@oaklandswealth.com to arrange a confidential chat.

Oaklands Wealth Management, founded by Helen Blackburn in 2004 advises clients around the Midlands on retirement planning, pensions & investments.

Her firm holds British Standard BS 8577 for client service & investment process.

Minimum investment is £500,000 (£650,000 for pension transfers).

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