Guide to Investment Objectives
and Risk Classification
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Investment rarely, if ever, provides guaranteed
returns. There are many variables which can affect
the performance of a portfolio from stock market
fluctuations, changes to personal circumstances,
taxation and legislative changes. Once an investment
is moved from the relative security of a bank or
building society account it must be viewed as having
moved into a risk environment. The process of
balancing greater risk with potentially greater
reward then begins.
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04
Custody of your investments
At Bartholomew Hawkins Asset Management the safety of our clients’ assets is of paramount importance.
As a result we use a nominee company to hold our clients’ assets on their behalf; it reduces costs and
minimises paperwork.
We have appointed Pershing Securities Limited as our custodian. Founded in 1939, Pershing is a London
based subsidiary of BNY Mellon (Bank of New York), which currently has $28.5 trillion of assets under
custody*.
A nominee company is a separate legal entity and its assets are not regarded as assets of Bartholomew
Hawkins Asset Management, Pershing or BNY Mellon, therefore as a client you can be sure that your
assets are safe should anything happen to these companies.
Understanding risk
Risk is another word for uncertainty or unpredictability. Most investments carry an element of risk as it
can be difficult to know what your returns will be.
The amount of risk that you are willing to take and over what period of time, directly affects your
potential returns. In general, the less risk your investment carries, the lower potential return you can
expect to make; whereas the higher the risk, the greater the potential return. However, this higher
potential carries the risk of greater fluctuations and potential losses.
Our investment philosophy revolves around providing the optimum investment performance for a
given level of risk. We will assist you in arriving at this ‘risk tolerance’ and then recommend the most
appropriate portfolio to match your circumstances and needs.
Measuring risk
Measuring risk is important. This enables us to construct an appropriate investment portfolio in
addition to ongoing risk monitoring which ensures your portfolio remains in line with your investment
strategy and objectives.
As an investor it is important to consider the cyclical nature of financial markets and inherent volatility.
Our approach to investment management through the understanding and measurement of risk is key
in order to smooth out market volatility over time
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*correct as of March 2015
At Bartholomew Hawkins Asset Management we consider many risk factors that could impact your
investment portfolio. Our favoured technique for quantifying risk is to analyse the historical volatility
of an investment.
Your need to take risk
In order for us to build a bespoke investment portfolio to meet your investment needs we must take
you through a detailed process of getting to know your financial situation, your life goals and your
investment objectives. Your investment strategy will include addressing your desired outcomes, in
other words what are you investing for, what goals and desires do you have for this money and what are
the timeframes involved?
Although you may have the capacity and the willingness to take on a high level of investment risk,
however, your specific financial goals might dictate that you don’t need to expose yourself to such levels
of risk. Conversely, you may not be comfortable with taking any risk with your capital but there may be
a need to take some risk in order to meet your objectives. We will discuss and explain these implications
with you in great detail and help you make an informed decision about the level of risk you wish to take.
HERE ARE SOME OF THE AREAS YOU SHOULD CONSIDER:
• What am I investing for?
• What means do I have to enable me to invest?
• How long am I prepared to invest for?
• Do I need access to my money at any point?
• What other investment products do I already have?
• What degree of risk am I prepared to take?
Your capacity for risk
You may be willing to take on large amounts of investment risk, however, your circumstances may
dictate that you can’t afford to take that risk without it potentially having a materially detrimental
effect on your standard of living. Your ‘Capacity for Loss’ indicates the level of investment risk you can
feasibly take, or your ability to absorb falls in the value of your investments, without jeopardising your
financial security.
In order to establish your capacity for loss we ask clients a series of risk-graded questions which gives
an overall score for your capacity for loss.
Your attitude to risk
Even if you can afford to make a loss on your investments, it would be foolish to choose a higher risk
investment portfolio if worrying about its potential volatility will give you sleepless nights. It is vitally
important you are comfortable with the level of risk being taken with your portfolio; attitude to risk
is a personal decision which will be affected by your own circumstances, personality and investment
objectives. In rising markets people can overestimate their appetite for risk, and vice versa.
In order to establish your attitude and tolerance to risk we ask clients a series of detailed risk-graded
questions which gives an overall score for your Attitude to Risk.
Once we have established your attitude to risk, your capacity to take risk and the need to take risk into
consideration of your financial objectives we will then be able to agree your overall risk profile. A client’s
risk profile is reviewed on a periodic basis and forms the foundation for the provision of appropriate
investment strategies.
06
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Things to consider before investing
Time horizon
We believe you should take a medium to long term view of your investment: that is, you should expect
to stay invested for five years or more. This means short term fluctuations in financial markets should
have less impact on the long term value of your investment portfolio.
Uncertain returns
You should be aware the value of investments can fall as well as rise. This is particularly important if
you are investing with a view to funding a specific event, because you might want to liquidate your
investments at a time when the market has fallen. Your investments may not then be able to fund your
plans as you had hoped.
Risk tolerance
Some investors can tolerate risk more than others, remaining unperturbed when their investments
fall, even to levels below their original value. Such investors are confident their investments are likely
recover and will rise in value before they decide to liquidate them.
Other investors are more cautious, and would rather forego the prospect of higher returns in exchange
for a lower chance of capital loss (although all investments carry the risk of loss of capital to some
degree).
Growth or income
Most investments aim to deliver either growth over the longer term, a flow of income, or a combination
of both. Your own circumstances will dictate what is suitable for you and your needs may change over
time.
08
Your investment objective – the three risk factors
When designing a bespoke investment portfolio for you, it’s important we fully discuss the implications
of investment risk, explore your feelings towards investment and the exposure to risk this will bring,
and come to an informed decision regarding the three risk factors:
• Your need to take investment risk
• Your capacity to take investment risk
• Your attitude towards investment risk
These three factors will dictate your investment decisions and will drive the objectives and outcomes
of your bespoke portfolio. It’s vitally important that we fully review your personal and financial
circumstances on a regular basis as any chances in these circumstances will materially affect these
three risk factors.
YOUR
NEED TO
TAKE RISK
YOUR
CAPACITY
TO TAKE RISK
YOUR
ATTITUDE
TO RISK
YOUR
INVESTMENT
OBJECTIVE
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Guide to investment objectives, risk classification & capacity for loss
1
Investment objective
Risk classification
DEFENSIVE
CAUTIOUS – LOW RISK
Benchmark
The aim here is to provide low volatility of portfolio returns and ultimately
Investment Association Mixed
capital preservation. Given the lower amount of risk taken, clients should
Investment 0% - 35% Shares
expect a modest but consistent portfolio return. Typically you are willing to
invest in non-cash assets which will include some exposure to equities. You
accept that growth prospects are limited and understand your investment can
fluctuate in value, meaning you could get back less than you invest.
2
CAUTIOUS
CAUTIOUSLY OPTIMISTIC – LOW/MODERATE RISK
You are prepared to accept low-to-moderate investment risk in return for
Investment Association Mixed
growth potential. Typically you will invest in a wide variety of assets including
Investment 20% - 60% Shares
exposure to equities. This will increase the amount by which your investment
can fluctuate in value. You could get back less than you put in.
3
BALANCED
BROAD DIVERSIFICATION – MODERATE RISK
You are looking for a balance of risk and reward with the aim that, in the
Investment Association Mixed
longer term, higher returns may result. You are willing to accept that the value
Investment 20% - 60% Shares
of your investment will fall and rise in value and you could get back less than
you invest. Typically you will invest in a wide variety of assets.
4
CAPITAL GROWTH
CAPITAL GROWTH – MODERATE RISK
You are willing to accept a moderate level of risk on your investment in
Investment Association Mixed
order to seek growth potential in the longer term. You are prepared to accept
Investment 40% - 85% Shares
that this will increase the risk of moderate fluctuations in the value of your
investment which could result in an erosion of capital. You could get back less
than you invest. Typically you will invest in a wide variety of assets.
5
AGGRESSIVE
PROGRESSIVE CAPITAL GROWTH – MODERATE/HIGH RISK
You accept a moderate-to-high level of risk on your investment in order to
Investment Association Mixed
seek growth potential in the long term. You are willing to accept large day-to-
Investment 40% - 85% Shares
day fluctuations in the value of your investments and you accept the risk of
losing some or all of your capital. You could get back less than you invest.
6
SPECULATIVE
SPECULATIVE GROWTH – HIGH RISK
This is out highest risk level. Typically you are an experienced investor with
Investment Association Flexible
a good understanding of the risk/reward balance and you are willing to accept
Investments
significant and very sharp fluctuations in the value of your investment. You
accept the risk of losing some or all of your capital. You could get back less
than you invest.
10
What is a benchmark?
The purpose of a benchmark is to give an investor a yardstick against which they can measure the
performance of their own investment portfolio. Benchmarks are usually indices produced by external
organisations to show the performance of different types of investment.
The benchmarks listed here are the ones we believe best match the investment objectives for each risk
category. The performance of your portfolio will vary from the performance of the benchmark due to
the bespoke nature of our portfolios, but should remain relatively close as the contents of the portfolios
(and the risk level that implies) will be similar.
Benchmark
Description
Investment Association Mixed
Funds in this sector are required to have a range of different investments. Up to 35% of the fund can be
Investment 0% - 35% Shares
invested in company shares (equities). At least 45% of the fund must be in fixed income investments (for
example, corporate and Government bonds) and/or “cash” investments. “Cash” can include investments
such as current account cash, short-term fixed income investments and certificates of deposit.
Investment Association Mixed
Funds in this sector are required to have a range of different investments. The fund must have between
Investment 20% - 60% Shares
20% and 60% invested in company shares (equities). At least 30% of the fund must be in fixed income
investments (for example, corporate and Government bonds) and/or “cash” investments “Cash” can
include investments such as current account cash, short-term fixed income investments and certificates
of deposit.
Investment Association Mixed
Funds in this sector are required to have a range of different investments. However, there is scope for
Investment 40% - 85% Shares
funds to have a high proportion in company shares (equities). The fund must have between 40% and 85%
invested in company shares.
Investment Association
The funds in this sector are expected to have a range of different investments. However, the fund
Flexible Investments
manager has significant flexibility over what to invest in. There is no minimum or maximum
requirement for investment in company shares (equities) and there is scope for funds to have a high
proportion of shares. The manager is accorded a significant degree of discretion over asset allocation and
Source: Investment Association
is allowed to invest up to 100% in equities at their discretion.
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Capacity for loss
The charts below simulate a range of possible annualised outcomes over multiple time periods for each
risk-graded investment strategy. Each investment strategy has a different level of risk and you should
make sure that you are comfortable with this.
2
DEFENSIVE
40%
ANNUAL GROWTH
30%
20%
10%
0%
-10%
-20%
-30%
3
1YR
3YRS
5YRS
7YRS
10YRS
15YRS
1YR
3YRS
5YRS
7YRS
10YRS
15YRS
CAUTIOUS
40%
20%
10%
0%
-10%
-20%
-30%
12
Source: FE Analytics, eValue & Bartholomew Hawkings Asset Management
ANNUAL GROWTH
30%
4
BALANCED
ANNUAL GROWTH
40%
30%
20%
10%
0%
-10%
-20%
-30%
5
1YR
3YRS
5YRS
7YRS
10YRS
15YRS
3YRS
5YRS
7YRS
10YRS
15YRS
3YRS
5YRS
7YRS
10YRS
15YRS
CAPITAL GROWTH
40%
ANNUAL GROWTH
30%
20%
10%
0%
-10%
-20%
-30%
6
1YR
AGGRESSIVE
ANNUAL GROWTH
40%
30%
20%
10%
0%
-10%
-20%
-30%
7
1YR
SPECULATIVE
• High risk investment mandate
• No risk tollerance
• Driven by investment selection
rather than asset allocation
• Incorporates Bartholomew Hawkins Asset
Management’s quantitive screening process
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Risk management must be
the unequivocal foundation
to portfolio construction.
5 Oaktree Court
Cardiff Gate Business Park
Cardiff CF23 8RS
029 2050 8002
www.bham.co.uk
Email: [email protected]
Twitter: @bhassetman
LinkedIn: bartholomew-hawkins-asset-management
Bartholomew Hawkins Asset Management Limited is authorised and regulated by the Financial Conduct Authority (626359).
Registered in England & Wales (08215198). Company Registered office: 5 Oaktree Court, Cardiff Gate Business Park, Cardiff CF23 8RS.
Past performance is not a reliable indicator of future performance. The information contained in this document has been prepared for information
purposes only and does not constitute advice or a personal recommendation, nor does it constitute an invitation to purchase investments. It does
not purport to be a complete description of our investment policy, markets or any securities referred to in the material, and should be read in
conjunction with our Terms & Conditions, copies of which are available on request. The information on which the document is based is deemed to
be reliable, but we have not independently verified such information and we do not guarantee its accuracy or completeness. Changes in exchange
rates may have an adverse effect on the value, price or income of foreign currency denominated securities. The value of your investments and
income derived from them may fluctuate and investors may not receive back the amount originally invested. The securities and investment services
discussed in this document may not be suitable for all recipients. Bartholomew Hawkins Asset Management Limited recommends that investors
independently evaluate particular investments and strategies and encourages investors to seek the advice of a financial planner. The levels of
taxation and their respective treatment depend on your individual circumstances and the applicable law, which may be subject to change in the
future. The appropriateness of a particular investment strategy will depend on an investor’s individual circumstances and objectives.
BHAM007 JUNE15
RISK WARNING