Bank on a blend of the best Money Observer Rated Funds

Whether your goal is income, growth or a bit of both, our model portfolios can be a profitable place to start.

Constructing a diversi­fied portfolio that is well-placed to weather storms and take advantage of future bright spots is no mean feat. That is where Money Observer’s 12 model portfolios aim to help investors reach their ­financial goals.

Each consists of seven actively managed Rated Funds – both investment funds and investment trusts – and is tailored to take a speci­fic level of risk and produce either growth or income. They can be held in Isas, Jisas and self-invested personal pensions, to maximise the advantages these tax-advantaged wrappers confer.

Bearing in mind the fact that most private investors don’t want to be constantly monitoring their investments, Money Observer aims to keep constituent and portfolio weighting changes to a minimum, which also helps to reduce the effect that charges have on performance.

The portfolios are updated quarterly: in January, April, July and October. These updates appear in the following month’s issue of Money Observer magazine; all of the portfolios’ constituents and updates, plus monthly performance figures, are also listed here on our website.

Our growth portfolios

Profit-hunting over three timeframes

The ­first six models are designed for those looking to grow their capital – three for medium-risk and three for higher-risk investors.

The portfolio that is most appropriate also depends on the investment timeframe. The shorter-term portfolios are suitable for those looking ­five to nine years ahead; medium-term for 10-14 years; and longer-term for 15 years or more.

Portfolios with shorter timeframes have a greater focus on capital preservation, as they have less opportunity to recover in the aftermath of a serious market correction. Conversely, those focused on returns 15 years down the line have the scope to take more risk for potentially greater rewards, albeit with considerable shorter-term risk.

The differences in performance during 2018’s global stockmarket volatility are as one would expect: the shorter the timeframe and lower the risk pro­ le, the better the performance.

Nevertheless the success, or otherwise, of the portfolios should be assessed over longer timeframes. Since inception in January 2012, the best medium-risk portfolio, Bravo, has returned 112%, while Foxtrot has been the best higher-risk portfolio with a 106% gain.

Returns from all bar one of the portfolios (Echo) compare favourably with the FTSE UK Private Investor Balanced and Growth indices, up 75% and 85%, respectively.

Our income portfolios

Choices to suit different income needs

Six models are designed for those looking for an income – again, three for medium-risk and three for higher-risk investors.

Two offer immediate income and make considerable use of bonds, property and derivatives. The growing income portfolios prioritise capital growth to support future dividend increases, so they mainly rely on equity income funds and trusts, while the balanced income portfolios seek to strike a balance between current income and future capital growth.

A signi­ficant allocation to equities – particularly UK equities, which have struggled amid Brexit-related headwinds – held back the income portfolios over the past year. They all incurred losses in the mid to high single digits and underperformed the FTSE UK Private Investor Income index. However, this benchmark has 40% in bonds and 10% in cash, which act as a buffer against poor-performing equity markets.

Cash is not held in any of the income portfolios, which helps explain their short-term weakness and long-term outperformance. Since inception, the best-performing medium-risk portfolio, India, has gained 112%, but that is trumped by the higher-risk 135% return from Lima – the best-performing model portfolio overall. It trounced returns from the Private Investor Income index (61%) as well as the Balanced index (75%).

Portfolios in a nutshell

Growth

Alpha may suit … investors with children seeking to build up capital for their further education; investors in their 50s building up extra capital.

Bravo may suit … investors with young children seeking to build up capital for their further education, or to help them with a deposit for their first home; investors in their late 40s or early 50s who want to build up extra capital.

Charlie may suit … investors with very young children seeking to build up capital for their further education or to help them with a deposit for their first home; investors in their 40s or younger who want to build up a nest egg or extra capital for when they retire.

Delta may suit … investors who have other secure savings, wish to accumulate an extra nest egg but unsure about when the capital will be required; investors approaching retirement with ample pension provision who want to make extra savings.

Echo may suit … investors who have other secure savings wishing to accumulate a nest egg for grandchildren via a Jisa; investors in their early 50s with adequate pension provision who want to make extra savings for their retirement.

Foxtrot may suit … investors who have other secure savings who wish to accumulate a nest egg for grandchildren via a Jisa; investors in their early 50s with adequate pension provision who want to make extra savings for their retirement.

Income

Golf may suit … retired investors looking primarily for a high starting income and to maintain the value of their capital; may also appeal to investors approaching retirement who can opt to reinvest their dividends until required.

Hotel may suit … retired investors looking for a good income from their capital, with the potential for some growth in their income and capital; investors approaching retirement who can opt to initially reinvest their dividends until required.

India may suit … retired investors looking for long-term income and capital growth during their retirement; investors approaching retirement who can opt to reinvest their dividends until required.

Juliet may suit …retired investors with other sources of secure income looking primarily to maximise their starting income and to maintain the value of their capital, but who are prepared to take greater risks to achieve these aims; investors approaching retirement who can opt to reinvest their dividends until required as part of a growth strategy.

Kilo may suit … retired investors with other sources of secure income who are prepared to take additional risks with their spare capital in order to boost their income and growth prospects; younger investors who can opt to reinvest their dividends as part of a long-term growth strategy.

Lima may suit … adventurous investors; newly retired investors with other sources of secure income, who want a growing income from their capital over the long term, plus capital growth; younger investors who can opt to reinvest their dividends as part of a long-term growth strategy.

How Money Observer model portfolios are performing

  Portfolio total return (%) after: *       Portfolio expense† % Yield† †  %
Growth 1 year 3 yrs 5 yrs Inception   %
Alpha: Short Term Growth, Medium Risk 1.6 41.0 54.5 82.1 0.89 1.7
Bravo: Medium Term Growth, Medium Risk -0.6 47.7 63.1 111.6 0.97 1.6
Charlie: Longer Term Growth, Medium Risk -7.3 29.5 39.6 89.4 0.99 1.5
Delta: Short Term Growth, Higher Risk -4.4 38.9 53.4 93.5 1.03 1.8
Echo: Medium Term Growth, Higher Risk -5.1 39.0 30.9 71.0 1.24 1.2
Foxtrot: Longer Term Growth, Higher Risk -6.2 50.6 42.1 106.2 1.46 1.0
Income            
Golf: Immediate Income, Medium Risk -4.7 20.7 20.1 66.3 0.94 4.9
Hotel: Balanced Income, Medium Risk -4.8 24.8 28.1 74.2 0.77 4.0
India: Growing Income, Medium Risk -5.2 35.3 44.9 111.9 0.90 3.7
Juliet: Immediate Income, Higher Risk -6.4 21.6 30.7 82.8 0.93 5.1
Kilo: Balanced Income, Higher Risk -7.9 24.4 30.8 97.4 0.82 4.2
Lima: Growing Income, Higher Risk -6.6 39.9 49.9 134.6 1.00 3.3
Benchmark indices            
FTSE UK Private Investor Balanced -0.9 32.7 40.5 74.5    
FTSE UK Private Investor Growth -1.5 38.0 44.2 84.5    
FTSE UK Private Investor Income -1.0 26.7 35.4 60.7    

Notes: *Performance with income reinvested. Inception date for model portfolios is 1 January 2012. ł The weighted ongoing charge for constituents (excludes dealing or investment platform charges). łłYield represents the historic annual income that current constituents have produced. This income can be reinvested or taken by the investor. Source: FE Analytics, as at 22 January 2019.

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