2. Agenda 10.00 Introduction Andrew Whiteley MD - WKH Financial Services Ltd 10.05 The Search for Income Andrew Whiteley 10.25 Constructing the Modern Income Portfolio Philip Bailey – Investment Consultant - WKH Financial Services Ltd 11.00 Questions & Refreshments 11.30 Close
6. How did we get here? 15 May 2006 : “The mortgage market is going to be a great market in this country for a long time” – Ken Thompson, Wachovia ex-CEO 9 Oct 2006 : “I think the worst of this [housing market] may be over” – Alan Greenspan 16 March 2007 “The problems in the subprime market seem likely to be contained” –Ben Bernanke 10 July 2007 : “As long as the music is playing, you’ve got to get up and dance. We’re still dancing” – Chuck Prince, Citigroup ex-CEO 16 Aug 2007 : “Looking over periods of stress that I’ve seen, this is the strongest global economy we’ve had” –Hank Paulson, Treasury Sec 5 Dec 2007 :”We believe the probability that [AIG] will sustain an economic loss is close to zero” – Martin Sullivan ex-CEO of AIG 10 Mar 2008: “Bear Stearns’ balance sheet, liquidity and capital remain strong” – Alan Schwartz, ex-CEO of Bear Stearns 7 May 2008 : “I do believe that the worst is likely to be behind us” – Hank Paulson
7. Source: Bloomberg, 20.01.09, JP Morgan The Result World Banks - Market Capitalisation Market Value as of Q2 2007, $Bn Market Value as of January 20 th 2009, $Bn Deutsche Bank Credit Agricole Societe Generale Barclays BNP Paribas Unicredit UBS Goldman Sachs Santander Citigroup JP Morgan HSBC Credit Suisse Morgan Stanley RBS 49 120 76 67 80 91 108 93 116 75 100 116 255 165 215 16 4.6 10.3 17 26 7.4 32.5 26 35 27 35 64 19 85 97
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11. How do other investments fare during a recession?
21. Components of a modern income portfolio UK Equities Percentage of Portfolio 18% Contribution to Yield 1.1%
22. Corporate Bonds Percentage of Portfolio 22% Contribution to Yield 1.7% Components of a modern income portfolio
23. Conventional Government Bonds - Gilts Percentage of Portfolio 30% Contribution to Yield 1.3% Components of a modern income portfolio
24. Index Linked Gilts Percentage of Portfolio 20% Contribution to Yield 1.1% Components of a modern income portfolio
25. UK Commercial Property Percentage of Portfolio 10% Contribution to Yield 0.6% Components of a modern income portfolio
26. Components of a modern income portfolio UK Equities 1.1% Corporate Bonds 1.7% UK Gilts 1.3% UK I-L Gilts 0.2% UK Commercial Property 0.6% Total Annual Yield 4.9%
27. Philip Bailey Investment Consultant WKH Financial Services Limited “ Constructing the Modern Income Portfolio”
38. ETFs for precise asset allocation Asset Class Security TER Bps Yield % FTSE 100 iShares FTSE 100 0.40 5.62 FTSE 250 Lyxor FTSE 250 0.35 4.72 Smaller Companies iShares DJ EuroStoxx SmallCap 0.40 5.36 High Dividend iShares FTSE UK Dividend + 0.40 10.88 USA iShares S&P 500 0.40 2.52 EU iShares MSCI Europe ex UK 0.40 5.11 Japan Lyxor Japan Topix 0.50 0.00 Asia Pacific Lyxor MSCI Asia Pacific ex Japan 0.65 1.61 Emerging Markets Lyxor MSCI Emerging Markets 0.65 0.00 UK Gov Con Bonds iShares FTSE UK All Stocks Gilt 0.20 4.36 UK Gov I-L Bonds iShares Index-linked Gilts 0.25 1.86 Corporate IG Bonds iShares GBP Corporate Bond 0.20 8.02 Corporate SIG Bonds AEGON High Yield Bond (inc) 1.11 12.31 Property iShares - FTSE EPRA/NAREIT UK Prop 0.40 7.06 Commodities Lyxor CRB Commodities 0.35 0.00
39. Risk Weighted Portfolios STRATEGIC POSITION Defensive Defensive to Balanced Balanced Balanced to Aggressive Aggressive FTSE 100 10.00% 10.00% 12.00% 11.00% 20.00% FTSE 250 5.00% 5.00% 6.00% 7.00% 10.00% Smaller Companies 3.00% 3.00% 3.00% 4.00% 6.00% High Dividend 5.00% 5.00% 6.00% 8.00% 9.00% USA 0.00% 2.00% 3.00% 4.00% 5.00% EU 0.00% 2.00% 3.00% 4.00% 5.00% Japan 0.00% 2.00% 3.00% 4.00% 5.00% Asia Pacific 0.00% 2.00% 3.00% 4.00% 5.00% Emerging Markets 0.00% 4.00% 5.00% 8.00% 15.00% UK Gov Conventional 19.00% 12.00% 7.00% 7.00% 0.00% UK Gov Index-Linked 16.00% 8.00% 6.00% 6.00% 0.00% Corporate IG 27.00% 21.00% 12.00% 9.00% 5.00% Corporate SIG 5.00% 9.00% 11.00% 5.00% 0.00% Property 10.00% 12.00% 15.00% 12.00% 5.00% Commodities 0.00% 3.00% 5.00% 7.00% 10.00% Total 100.00% 100.00% 100.00% 100.00% 100.00% Equity Sub Total 23.00% 35.00% 44.00% 54.00% 80.00% Bond Sub Total 67.00% 50.00% 36.00% 27.00% 5.00% Other Sub Total 10.00% 15.00% 20.00% 19.00% 15.00%
40. Provisio – Risk Weighted Portfolios Portfolio Defensive Defensive to Balanced Balanced Balanced to Aggressive Aggressive Balanced High Yield Expected Total Annual Returns 6.4% 7.4% 8.1% 8.7% 10.2% 7.6% Expected Standard Deviation +/- 7.8% +/- 9.3% +/- 10.9% +/- 12.7% +/- 17.7% +/- 11.5% Average annual yield (included in above annual returns) 4.00% 3.82% 3.53% 3.06% 2.53% 5.20%
41. Provisio – Total Expense Ratios (TER) Extremely low portfolio management costs The TER of the average UK Equity unit Trust is 1.68% per annum* Average fund of funds TER is over 2.00% Beware - Total Expense Ratios do not include dealing costs. It is not uncommon for actively managed portfolios to have TERs of over 3% per annum when dealing costs are taken into account. *( source: Fitzrovia UK Fund charges Jan 2007 ) Provisio Portfolio Defensive Defensive to Balanced Balanced Balanced to Aggressive Aggressive Balanced High Yield Weighted Average TER (P.A) 0.33% 0.42% 0.47% 0.43% 0.44% 0.48%
42. Provisio – the effect of charges Initial investment of £250,000 and 7% per annum growth Investment Term Return 0.6% p.a. charges Return 1% p.a. charges Return 2% p.a. charges Return 3% p.a. charges 5 years £340,272 £333,530 £317,243 £301,740 10 years £463,141 £444,969 £402,574 £364,188 15 years £630,377 £593,642 £510,857 £439,561 20 years £857,999 £791,991 £648,265 £530,533