James Hughes, portfolio manager at AXA Multi Manager, constructs a model portfolio for "Joe Bloggs", a cautious investor approaching 60-years-old
Before discussing the actual selection of managers for Joe Bloggs, I feel it is important to remember that anyone aged around 60 (I have assumed slightly under for the purpose of this article) should begin to see the asset allocation of their portfolio evolve over time to meet their needs at retirement.
So, assuming Joe will retire at 65 and given his cautious nature (after all, real risk to Joe is actually losing money/capital and not necessarily chasing some obscure benchmark, whether it is positive or negative), I have put together a portfolio of managers that tend to be more benchmark-aware rather than benchmark-constrained.
You will notice that we have not selected a specific UK Gilts manager for Joe, but have instead chosen two specialist global government bond managers, namely Thames River Capital and Newton. These groups' expertise in selecting the best value government debt anywhere in the world rather than purely UK Gilts will allow them to add considerable returns over the years. The same argument applies to index-linked securities and hence we have selected Standard Life's Global Index Linked Fund for inflation protection.
For Joe's corporate bond exposure, I have chosen two very active managers with the flexibility to use up to 20% in high yield and also varying degrees of government debt depending on market conditions. Both David Roberts (Aegon) and Richard Woolnough (M&G) are very experienced fund managers and have strong supporting teams allowing them to fully exploit anomalies in the high yield area of the market. Finally, within corporate bonds, we have chosen the Legal and General High Income Trust for specialist high yield exposure – again the team headed by David North is very strong and the clear process and risk controls ensures a low-risk approach to high yield investing.
The equity portion of Joe's portfolio is also invested with managers where the benchmark does not inhibit flair and hence allows scope to add value through stock picking. In the UK, I have selected a combination of Mark Lyttleton's MLIM UK Dynamic Fund, Clive Beagles's JOHCM Income Fund and Derek Stuart's Artemis Special Situations Fund to provide three very different but complimentary styles.
Lyttleton's approach to identifying catalysts within companies to release value differs to Stuart's approach to investing in turnaround companies and fallen angels. Beagles on the other hand will typically hold a portfolio of higher yielding stocks in line with his strict discipline on dividends.
Overseas, I have chosen three broad managers. Edinburgh Partners, headed by Sandy Nairn, will manage the global equity portfolio again with a non-benchmark constrained style. Asia and emerging equities will be managed by Hugh Young's team at Aberdeen where their longer-term value approach to investing in a fairly volatile region has been a successful strategy over the years. Finally, to provide some additional diversification, we will allocate a small portion to First State Global Resources Fund. Commodities not only offer relatively low correlation with global equities, but would benefit from a pick-up in global inflation.
Property will also help diversify Joe's portfolio and, given the yields on UK property (particularly commercial property), also provide Joe with income. M&G's property fund is one of the few UK retail funds – that means it invests in the physical asset as opposed to property shares.
Overall, I feel this combination of managers will offer Joe a well-diversified portfolio of managers across a number of asset classes. As ever with these portfolios however, frequent monitoring to ensure the overall structure remains in line with his evolving needs is important.
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