Many of the world’s larger Wealth Managers are not interested in looking after investment portfolios of less than £250,000. They deem them to be uneconomic, largely because of the costs of regulation. A client with £50,000 needs to complete the same amount of paperwork as the investor with £5M.
At Hamilton Financial we have developed – in partnership with AJ Bell Investcentre – a method by which smaller investors can profit from the same level of investment expertise as those with larger portfolios.
HF Active Share is a group of ‘model’ portfolios*. Clients can choose from 5 different investment mandates which range from Cautious to Dynamic; the more adventurous you feel – and for the young, adventure is a prerogative – the higher up the risk curve you are usually prepared to go.
HF Active share will typically suit:
- Those making regular contributions into a pension (SIPP), an ISA or a General Investment Account (GIA)
- Those with a longer investment time-horizon such as the young
- Those with smaller amounts to invest
Because HFAS uses the same holdings as the full service, performance will follow a similar trend. You can follow the long term trend by checking HERE
(Past performance is not necessarily a guide to future performance and your capital is at risk.)
Portfolio size & Charging structure
For practical reasons we have to set a minimum portfolio size at £50,000. This is primarily to ensure efficient investment though it does also enable efficient administration. However, the use of investment funds still provides a high level of diversity across up to 1,000 stocks. Naturally, portfolios of over £250,000 would receive our full investment service.
HF charges an HF Active initial one off fixed fee of £1,000 for complying with FCA regulations. This includes:
- Discussion to establish objectives, risk profile and suitability for the appropriate mandate
- Formal assessment of these through documented Factfind and risk assessment
- Anti money-laundering procedures
- Setting up of account with investment platform for portfolio management.
HF Active ongoing charges are 1% of average portfolio, charged quarterly in arrears. This is split between a 0.8% HF fee and a 0.2% platform charge.
HF ActiveTrading charges are zero
No VAT is applied to any of the above charges.
Advantages of using HF Active Share
Small is beautiful.
Unlike bigger institutions, we can access smaller and nimbler actively managed funds. Typically, these are quoted Investment Trusts – described by some as the City’s best kept secret – rather than their open-ended counterparts, Unit Trusts or OEICS. (See glossary below for explanation.) Some additional advantages are:
- The greater flexibility and better long-term performance offered by Investment Trusts over their open-ended counterparts. (‘Passive’ funds, by definition, are not used).
- Fund Managers are chosen, naturally, for their consistent performance but will demonstrate a strong culture and engagement with both companies and investors
- Individual ethos and specialist knowledge.
- No trading charges, i.e. no charges for buying and selling securities. Our advisory level of management eliminates the need for VAT.
- The same high standard of personal service that we provide for clients with larger portfolios, albeit less frequently.
- Using HF Active Share, you will be able to get through to your HF investment manager without having to navigate your way through a human hierarchy. However the more formal portfolio structure will reduce dialogue. (Active Share clients can reach their portfolio manager twice a year maximum – but we can be flexible.)
- HF Active Share instils a firm investment discipline which avoids the crosswinds of short-term movements and volatility.
HF ACTIVE SHARE CONDITIONS
- Portfolio size £50,000 – £250,000
- Initial fixed fee regardless of portfolio size – £1,000.
- Ongoing advice charges including platform charge – 1% of assets under management
- Trading charges – i.e. buying and selling investments – zero cost
- Investment changes ( rebalancing) are restricted to once a year only
- Regular contributions – e.g monthly pension contributions – are invested every quarter
- Valuations and commentary – twice a year.
- Communication – the HF team will be available for direct communication ( phone) once every 6 months. (We can be flexible.)
Investment Trusts, known in the US as mutual funds, are LSE quoted companies with share capital and a Board of Directors who are independent of the Managers.
- Their structure always allows them liquidity, though for smaller Trusts dealing may be more expensive in volatile conditions.
- Because the shares are quoted on the open market, prices will be independent of the underlying assets but open to supply and demand.
- The resulting ‘premium’ or ‘discount’ will often reflect the quality and track record but also heighten short term volatility. This can be used to advantage by investors.
- Investment trusts are also characterised by the facility to borrow and the ability to invest in unquoted shares, thus enhancing short term volatility potential but increasing that for long term stability and gains.
Unit trusts and Open-Ended Investment Companies (OEICs) are funds whose size varies with demand.
- Their units or shares directly reflect underlying asset values when bought or sold. There is a (sometimes wide) difference between buying and selling prices through unit trust but OEICs, introduced relatively recently and generally more popular now, trade at a single price with many advisers charging commission.
- Dealing is not continuous and though most funds price daily it may be weekly or longer. This, together with the lack of price visibility caused by pricing taking place after all bids and offers have been closed (‘forward pricing’) much reduce their flexibility.
- In addition the Managers may close the fund to dealing in volatile conditions to preserve the value of underlying assets: this is often seen as a critical disadvantage compared to investment trusts.
- Open ended funds cannot borrow or invest in illiquid securities.
Fixed interest or bond funds have several categories.
- Straightforward ones invest in Government securities (in the UK ‘Gilts’) or corporate (ie company) debt; these can be classified according to yield, borrower’s quality (assessed by rating agencies such as Standard and Poors), time to maturity (often simplistically referred to as ‘duration’).
- Government securities may be ‘conventional’ or index-linked (known as ‘TIPS’ in the USA) which provide some compensation for inflation.
- ‘Strategic’ bond funds may use derivatives and trade in ‘credit’ – manipulating interest rate differentials in duration, rather than the underlying bond.
Andrew Hamilton, August 2021
Financial Advice | Investment Management
The information contained in this document is for guidance only and does not constitute advice which should be sought before taking any action or inaction. The value of investments can fall as well as rise. You may not get back what you invest.
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