How we are looking to redefine U.K pension portfolios
Under performing Pension
Most people that come to me with SIPPs and QROPs that have underperformed. In fact if I counted the time that I have seen a pension that is in one of these schemes actively beat inflation minus the fees is rare. Start looking at what it costs you to be underperforming.
We are going to change with a simple guideline (U.K.) portfolio approach to ensure that one of your biggest assets is getting the treatment that is deserved.
Why?
Why have I done this, well I stated before in my blogs that simplicity is the way forwards and how I am personally sticking to a few funds that I rate highly. I believe this is the case with pensions but you do need a bit of protection in there to stick to the guidelines assets allocation as added protection against equity & volatility. Of course, everyone is individual and has individual circumstances, hence the point of a review as having had clients that want more equity as they have saved already in fixed interest or some who want nothing with international property as they already have a property portfolio. I am not saying it’s a one shoe fits all solution but this can cover the majority. I have even come across personal a wealth individual that wanted his final salary pension in high-risk equities, as has enough to retire stable and was well off and just wanted to get his pension out and grow from it rather than a set income as could afford for it to be volatile (the regulators refused to take this on).
Here is the guideline for your standard case pension according to your risk level according to the risk level.
| Conservative | Moderate | Balanced | Growth | High Growth | |
| Time Frame | 2 years | 3 years | 5 years | 7 years | 10 years + |
| Return Objective | CPI+ 1% | CPI + 2.5% | CPI + 3.5% | CPI + 5% | CPI + 6% |
| Int. Equities | 21% | 38% | 44% | 53% | 55% |
| Int. Properties | 5% | 10% | 14% | 17% | 20% |
| Fixed Interest | 50% | 38% | 26% | 13% | 0% |
| Alternatives | 0% | 0% | 10% | 15% | 25% |
| Cash | 24% | 14% | 6% | 2% | 0% |
I have then formed, working to the current fund selection processes (below), a portfolio that is in line with both my strict fund selection and guidelines for assets allocation.
This has been done for the protection of the pension, though assets classes. It stands a good chance as any of hitting the respected targets.
Note it can be done in USD, GBP, EUR for British expats.
Fund Selection
I use the following criteria to select your funds based on your preferences:
- Using two independent rating agencies (S&P and Morningstar) to ensure that all the funds are 4 stars of the majority of the conservative portfolio (5 stars being the max with both rating agency) and no fund is under 3 stars.
- Ensuring that each of the major funds has at least 100 million USD equity and every fund is from a major investment fund that is suitably accredited.
- Ensuring that the average expectation of each fund in line with its objective for over the last 5 years
About the Rating Agencies
- Morningstar
Morningstar is a leading global provider of independent investment research, conducted by a team of over 100 fund analysts worldwide. Morningstar is highly regarded by investment experts for its in-depth research which can help you assess different funds and their potential role in your investment portfolio. Their analysts employ a rigorous appraisal procedure which is reviewed on a regular basis.
They are highly experienced and recognized in the market as providing a clear focus for the investor through the quality, independence, and depth of their research. Morningstar rates investments from one to five stars based on how well they’ve performed in comparison to similar investments, after adjusting for risk and accounting for all relevant sales charges.
- S&P
Standard & Poor’s (S&P) is a leading index provider and data source of independent credit ratings. It is also the provider of the popular S&P 500 Index.
Growth Portfolio
| SECTOR | INVESTMENT MANAGER | INVESTMENT NAME | PERCENTAGE % |
| Global large cap blend equities | Morgan Stanley | MS Global Opportunity | 20 |
| Equities technology | Franklin Templeton | FT Technology | 18 |
| Fixed Interest | PIMCO | PIMCO Global Bond | 10 |
| Alternatives Emerging Markets | iShares | iShares MSCI Pacific ex Japan | 20 |
| Property indirect global | Henderson | HEN Horizon Global Property | 20 |
| Mixed Assets | BlackRock | BR Managed Index Portfolios – Growth | 5 |
| US equity | iShares | iShares S&P 500 | 5 |
| Cash | Cash Access | Cash Access | 2 |
Balanced Portfolio
| SECTOR | INVESTMENT MANAGER | INVESTMENT NAME | PERCENTAGE % |
| Global large cap blend equities | Morgan Stanley | MS Global Opportunity | 20 |
| Equities technology | Franklin Templeton | FT Technology | 10 |
| Fixed Interest | PIMCO | PIMCO Global Bond | 15 |
| Alternatives Emerging Markets | iShares | iShares MSCI Pacific ex Japan | 10 |
| Property indirect global | Henderson | HEN Horizon Global Property | 14 |
| Mixed Assets | BlackRock | BR Managed Index Portfolios – Moderate | 16 |
| U.S Equity | iShares | iShares S&P 500 | 8 |
| Fixed Interest Europe | Morgan Stanley | MS Euro Bond | 5 |
| Cash | Cash | Cash Access | 2 |
Conservative
| SECTOR | INVESTMENT MANAGER | INVESTMENT NAME | PERCENTAGE % |
| Global large cap blend equities | Morgan Stanley | MS Global Opportunity | 15 |
| Asia fixed Interest | Franklin Templeton | FT Asian Bond | 6 |
| Fixed Interest Global | PIMCO | PIMCO Global Bond | 15 |
| Fixed Interest U.S | PIMCO | PIMCO U.S high yield | 18 |
| Property indirect global | Henderson | HEN Horizon Global Property | 5 |
| Mixed Assets | BlackRock | BR Managed Index Portfolios – Defensive | 16 |
| U.S Equity | iShares | iShares S&P 500 | 5 |
| Fixed Interest Europe | Morgan Stanley | MS Euro Bond | 15 |
| Cash | Cash | Cash Access | 5 |
I have seen too many expats and investors pay high fees for the pension, in own branded funds that just don’t perform, and funds that pay trail to the advisors such as GAM, etc, or upfront cost that are structured notes. How should you look out for these? Go to Morning star and look up the fund, this will give it an actual performance that is unbiased not the one from a glossy pdf.
Also, if they are offering structured notes, beware these do have a use in a portfolio but as my review on these are alternative and should stick to this percentage in the portfolio nothing more.
If you have any question or a Sipps pension QROPS that you want reviewing please feel free to reach out.
