CFM Discretionary Portfolio Service
Asset Allocation
We believe that the main driver for investment returns over time is asset allocation. Your portfolio may include the following different types of asset (the exact proportions will depend on your personal circumstances, risk tolerance and tax position, and on market conditions):
Cash
All portfolios have a linked cash account to receive any investment income, cover fees, and take advantage of specific investment opportunities as they arise. The cash balance is generally around 2% of the portfolio, but it may be higher when cash is held as a safe haven from falling stock markets. Cash and money market funds may also be used if appropriate.
Fixed Interest
This includes bonds issued by governments, sovereign debt or gilts, and bonds issued by companies (corporate bonds). As an investor in a bond you are entitled to a fi xed level of income during the life of the bond, and to a repayment of capital at maturity. The income and capital repayment on a bond may be either level or index-linked. The two key drivers affecting bond prices are interest rates and the credit-worthiness of the bond issuer. Bonds may be suitable for investors seeking either an income or capital growth with lower levels of risk, as well as diversification from equities.
Equities
These are shares quoted on stock markets in both the UK and overseas. Equities reflect a company’s fortunes – share prices rise and fall to reflect companies’ profits and growth expectations, as well as market sentiment. Companies may distribute profits as dividends. Portfolios invariably have a UK bias for UK investors, and we aim to diversify risk through exposure to a range of different markets around the world, as well as different market sectors. The geographical and sector exposure of portfolios varies according to market conditions and your risk tolerance. Equities offer the potential for longer-term capital growth in excess of infl ation, although capital and income can fall signifi cantly, particularly over shorter time periods.
Commercial Property
This includes direct investment in ‘bricks and mortar’ via a property fund, as well as investment in the shares of property companies such as Real Estate Investment Trusts (REITs), both in the UK and overseas. Commercial property offers the potential for both a rising income stream and increasing capital values over the longer term, although capital and income can fall significantly, particularly over shorter time periods. It can also provide diversification from both bonds and equities.
Alternative Assets
These may include assets designed to provide an absolute return in any market conditions, such as funds of hedge funds, commodities, and private equity, which generally have a low correlation with equities. They may be included either for diversification or to protect capital during periods of volatile equity markets.
