Asset Allocation and Attitude to Risk
Different asset classes expose investors to differing levels of risk. Asset allocation is the science of adjusting exposure to these asset classes to produce a risk profile that matches the investor’s particular circumstances. For example, a client aged 40, still in employment and planning on taking their retirement in 20 years time would normally have a higher propensity to risk than a 70 year old who is relying on the investment portfolio to fund their retirement.
Asset Allocation Examples
Niche’s range of seven investment models will cover the majority of clients’ current and future investment needs.
Balanced Diversified Example
A larger proportion of our investors have a risk profile which indicates that the Balanced Diversified model is suitable for them. This model has exposure to over 25 individual funds (the holdings within the equity allocation can be seen below). Furthermore, the actual positions within each fund can contain up to 150 individual securities providing diversification.
Drill down into Equities (55%)
The portfolio above is an illustration of the diversification offered by the Balanced Diversified Portfolio. It is not indicative of the positions that the fund would hold on an ongoing basis, as these positions would change in line with market conditions and future investment management decisions.
Making a Difference
The seven investment models offered through Niche are produced from a blend of the Core Funds.
Preference for Traditional or Diversified asset allocation
Niche makes a distinction between those portfolios that include alternative investments (“Diversified”) and those that specifically exclude them (“Traditional”). A client indicating an interest in alternative investments will enjoy access to assets such as student accommodation, life settlements, fine wine, traded endowments, protected income, commodities, hedge and currency funds plus other specialist areas of investment.
Well managed alternative investment vehicles can provide absolute returns, low volatility, little or no correlation with bonds or equities and potential insulation from disruption in mainstream markets.
Use of funds
Collective vehicles offer a number of advantages in constructing portfolios, which we strongly believe can contribute to the achievement of superior performance for a lower risk than holding individual securities.
The portfolio models are initially constructed by deciding asset allocation, which is derived from the risk profile of the portfolio, then by selecting a range of exceptional fund managers running specialist strategies within each asset class. This method has several objectives, including:
- Lower risk – a broad spread of underlying investments diversified by geography and asset class;
- Enhanced performance – access to ‘best of breed’ managers at institutional rates; and
- Management – realignment of portfolios within each risk profile.