Redmayne Bentley Investment Column: Leadership qualities – lateral thinking on portfolios for the successful businessman
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Forgive me for going all existential on you, but what is your purpose? Do you strive towards a goal, or drift through the universe succeeding through good fortune alone? If you do the latter then congratulations, you are a rarity! More than likely the more successful you are the more entrenched that purpose is in your thinking and the more you share it with your staff and encourage them to buy-in and believe it as well and all of their small wins add up to achievement of the common goal. Translate that to your portfolio. Do you ensure every constituent is working towards your objectives for that fund or do you let it drift without purpose? In this case the latter is unfortunately no rarity. A properly constructed portfolio should have a goal – to pay school fees; to top up your income in retirement now; or build up a fund that can do the same when you come to retire in later years. And each of the constituents in that portfolio should be working towards that goal. Take a fund that is being built up to help fund a future retirement; the objective will primarily be capital growth. Beyond traditional equities you might want to look at agriculture. Food prices have risen consistently month-on-month for the last year, regularly hitting fresh new highs; similarly clothing prices are also on the increase. This is largely due to the massive increase in the price of wheat and cotton; wheat in particular has doubled over the last year. A combination of floods and droughts across the globe, combined with a growing population, has pushed prices up. Moving forward, climatic change may see the supply side continue to be affected by the weather and the demand-side pressures are not going to disappear any time soon. Through the stock market you can now buy a diversified basket of agricultural stocks such as cotton, wheat, cocoa, coffee and corn; or limit yourself to just ‘grains’; or take your pick of the crops and buy just the one. The narrower the investment the riskier it is – food prices can be volatile – but if your goal is to maximise the fund because you have several years until you will need it then you may consider the risk worthwhile. Take a different situation of a self-invested personal pension (SIPP) for an individual with just a couple of years to retirement. Their goal will be to maintain the value and buying power of that fund before it goes into drawdown. With inflation running at between four and five percent an element of inflation protection must be built in order to maintain the value of the fund, but without undue risk. Index-linked gilts would immediately spring to mind, but you have to look to long dated gilts – beyond 2020 – to get a positive return even at three per cent inflation. Gold therefore might be worth a look as it is a well known hedge against inflation. You can now buy physical gold, stored in a vault, through a stock market listed product. Your investment therefore tracks the price of gold as directly as possible less administration and storage costs. An individual relying on the income from their fund will have the buying power of fixed interest vehicles eroded by inflation. For the portfolio to work towards a goal of maintaining a lifestyle, the income stream must also grow over time. Again the core of the portfolio will be equities with growing dividend streams perhaps with index linked gilts, but infrastructure may prove a different addition. Infrastructure funds are invested into PFI contracts that are government backed and inflation linked, providing a steady, reliable income stream that works towards the goal of protecting against inflation. As with any business, staying on top of new developments, new products and newsflow takes time and effort. The answer therefore is the tool of many great leaders – delegation! Delegate the job to a professional and concentrate your efforts on your own company’s purpose, safe in the knowledge that your personal finance goals are being taken care of. For further information on any of the products mentioned above, or for a discussion about how our investment managers can work to achieve a portfolio’s purpose please email g.mitchell@redmayne.co.uk More articles in
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