Model PortfoliosNov 15 2016

Fundhouse explores return-targeted ratings metric

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Fundhouse explores return-targeted ratings metric

“We know we are risk-averse by nature, so it should not surprise us that we overdo the emphasis on risk – the outcomes are exactly what we would expect from a species riddled with anxiety and risk aversion. But, that’s not to say we back a mindset of high risk/return at all costs.”

Some buyers have been more welcoming to the idea, but elevated valuations have also focused minds on risk.

“We are very happy with a fund ratings agency looking at a return basis,” said Peter Lowman, chief investment officer at wealth manager Investment Quorum.

“That seems quite sensible – but not to the extent of forgetting the parameters of risk. At this time in the cycle, we are in a bull market eight years in for equities and a lot longer in bonds. If there is a correction it could be quite violent and nasty.”

Clients choosing cash over stocks and shares may be missing out

Cautious individuals missing out on investment returns has become a common complaint for the asset management industry.

This can come in the form of clients opting for low-risk, low-return options over the longer term, but also happens when prospective investors opt to hold cash rather than risk time spent in the markets.

Earlier this month, research carried out by platform Alliance Trust Savings found that 91 per cent of respondents used cash Isas, with just 29 per cent opting for stocks and shares vehicles.

In London, nearly a third of respondents were using cash Isas for retirement funds, despite the long-term nature of this goal.

Sara Wilson, head of platform proposition at the company, said: “Although tax-free cash Isas can be a useful pot for short-term or emergency funds, those with longer term plans for their money may suffer by missing out on the greater potential for growth that stockmarket-based investments can provide.

“With low interest rates and a rising rate of inflation, cash accounts could actually be losing you money, so those with large cash savings should consider moving at least some of their money into a stocks and shares Isa.”