George Osborne’s 2014 budget retirement bombshell had numerous implications – a key one being the broadening of the role of the adviser.
Previously, the financial ‘life cycle’ of many individuals consisted of two key phases. The first being pre-retirement, in which wealth accumulation (and later preservation) was the priority. The second - post retirement, where the emphasis was placed on wealth distribution.
With the requirement to annuitise gone, the line between pre- and post-retirement planning has become increasingly blurred. Outcomes such as the generation of real (above inflation) returns and capital preservation that were historically prevalent in the pre-retirement phase now extend beyond retirement.
A key consideration – particularly in scenarios such as drawing income from accumulated capital - is the potential impact of significant market drawdown events. In this decade alone, we have witnessed a number of occasions in which the FTSE All-Share has suffered a double-digit fall in response to specific events. Of course, such episodes can be followed by a significant rebound but generating an income whilst making regular withdrawals through periods when markets are falling can quickly erode capital values.
As effectively as pound cost averaging can work in the accumulation phase, pound cost ravaging can really impact on the longevity on any drawdown strategy. In blunt terms, your client’s money may run out before they do! Against a backdrop of longer life expectancy, the sustainability of any drawdown strategy needs to be considered carefully. One potential option is to select an underlying investment in which the preservation of capital is a key priority. Even when investment returns are actively sought, it makes sense to avoid losing money in the first place.
The team at Pyrford have long been aware of the importance of capital preservation and a clear focus on quality and value has resulted in impressively resilient performance through difficult times. The Pyrford Global Total Return (Sterling) Fund is based on a strategy which Pyrford have been running since 1994. In that time, the UK stock market has fallen in five of the calendar years – periods in which the strategy has proven capable of weathering market downturns.
|Negative FTSE All-Share Index Years||2000||2001||2002||2008||2011|
|FTSE All-Share Index (TR)*||-5.9%||-13.3%||-22.7%||-29.9%||-3.5%|
|Pyrford Absolute Return Strategy**||+11.7%||+3.9%||-2.1%||+12.8%||+5.0%|
|Source: Pyrford International and FTSE|
*Source: Pyrford International and FTSE
**Performance shown is for Pyrford’s Absolute Return Strategy (Base Currency £) Composite, which comprises all fully discretionary, Absolute Return Strategy accounts with a market value greater than £7.5m, a base currency of GBP and no client restrictions or guidance. Performance is shown gross of fees. The composite focuses on absolute returns and is benchmark-agnostic, although performance has been shown against the above index as supplemental information and for comparison purposes only.
Pyrford International Ltd is an independent investment boutique operating as part of BMO Global Asset Management.
For professional investors only. Please remember that any income generated is not guaranteed and is subject to fluctuation. Past performance is not a guide to future performance. Views and opinions have been arrived at by BMO Global Asset Management and should not be considered to be a recommendation or solicitation to buy or sell any products that may be mentioned.
© 2017 BMO Global Asset Management. All rights reserved. BMO Global Asset Management is a trading name of F&C Management Limited, which is authorised and regulated by the Financial Conduct Authority.