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Asset Allocation Explained |
Equity – Often referred to as shares. Shares are units of ownership in a company which entitle the holder to certain rights for example to exercise voting rights or to participate in the company’s profits.
Fixed Income – Often referred to as fixed interest or bonds. When you invest in bonds, you are typically lending money to a company or a government in return for a defined series of interest payments and the promise that a defined value (called the ‘face’ or ‘par’ value) will be returned at a certain point in time
Property – Investments in property include residential, offices, warehouses and shopping centres.
Cash – Money held in cash or cash-like instruments, often to ensure there are sufficient liquid assets within a portfolio.
Other – Contains other investments such as commodities, preferred stock and derivatives.
Portfolio Risk Explained |
Investing involves risk, but there are many types of 'risk' so it's important to be clear about what it really means for you and your money. When investors talk about risk they're often thinking about things like getting disappointing returns, losing money, failing to keep pace with the cost of living or missing out on a specific goal.
What we're really talking about here is uncertainty. It's hard to measure, but one approach is to look at the volatility of the investments in your portfolio – how much they have tended to fluctuate in value. The more risk you take with your investments, the higher the rewards might be, but the potential to lose money also increases. Too much risk might be expensive and stressful to live with, but too little could mean your investments don't keep pace with inflation and lose their buying power over time.
The key is to find the level that's right for you – the level that you're comfortable with and able to cover financially. Finding it depends on a number of things
Measuring the level of risk in an investment portfolio is difficult. Risk measurement methods use mathematical tools and techniques and are based on a number of assumptions, often based on how an investment has performed in the past. As we know however, what's happened in the past isn't necessarily a good predictor of what might happen in the future so this should always be borne in mind when using portfolio risk measures.
Despite their limitations, with a proper understanding of how they should be interpreted, risk measures can be a useful tool in the investment decision making process. They should always be regarded as useful indicators and nothing more – to help inform your investing decisions but not to drive them in their entirety.
Equity Styles Explained |
Market capitalisation is an indication of the size of the companies being invested in. It is calculated by multiplying the number of shares issued by the company by the current share price. Market capitalisation is divided into ‘large’, ‘medium’ or ‘small’ according to the below:
Large – Companies that have a market capitalisation greater than $10 billion.
Medium – Companies that have a market capitalisation between $2 billion and $10 billion.
Small – Companies that have a market capitalisation below $2 billion.
Companies can be categorised as ‘value’, ‘blend’ or ‘growth’ as defined below:
Value – Companies that are considered to be trading at a share price below what their fundamentals would suggest.
Blend – Companies that do not exhibit solely value or growth characteristics.
Growth – Typically well-established companies which are considered to have above average prospects for long-term growth.
Equity Regions Explained |
Equity region indicates in which countries the underlying shares within your portfolio are listed.
USA – Companies listed on a stock market in the USA.Canada – Companies listed on a stock market in Canada.
Latin America – Companies listed on stock markets in the Caribbean, Central America and South America, such as Mexico, Brazil and Argentina.
United Kingdom – Companies listed on a stock market in the United Kingdom, Guernsey, Isle of Man and Jersey.
Eurozone – Companies listed on stock markets in countries which have the Euro as their official currency, such as France, Germany and Spain.
Europe ex Eurozone – Companies listed on stock markets in western European countries which do not have the Euro as their official currency, such as Denmark, Sweden and Switzerland.
Europe Emerging – Companies listed on stock markets in European emerging markets, such as Poland, Russia and Turkey.
Africa – Companies listed on stock markets in African countries, such as Egypt, Nigeria and South Africa.
Middle East – Companies listed on stock markets in Middle Eastern countries, such as Israel, Qatar and Saudi Arabia.
Japan – Companies listed on a stock market in Japan.
Australasia – Companies listed on stock markets in Australia and New Zealand.
Asia Developed – Companies listed on stock markets in developed Asian countries, such as Hong Kong, Singapore and Taiwan.
Asia Emerging – Companies listed on stock markets in emerging Asian countries, such as China, India and Thailand.
Equity Sectors Explained |
Cyclical – Companies which operate in industries that are considered to be significantly affected by economic shifts. When the economy is prosperous, these industries tend to expand and when the economy is in a downturn they tend to shrink.
Basic Materials - Companies that manufacture chemicals, building materials and paper products. This sector also includes companies engaged in commodities exploration and processing.
Consumer Cyclical - This sector includes retail stores, auto and auto-parts manufacturers, restaurants, lodging facilities, specialty retail and travel companies.
Financial Services - Companies that provide financial services include banks, savings and loans, asset management companies, credit services, investment brokerage firms and insurance companies.
Real Estate - This sector includes companies that develop, acquire, manage and operate real estate properties.
Sensitive – Companies that operate in industries that ebb and flow with the overall economy, but not severely. Sensitive industries fall between defensive and cyclical, as they are not immune to a poor economy, but they also may not be as severely affected as cyclicals.
Communication Services - Companies that provide communication services using fixed-line networks or those that provide wireless access and services. Also includes companies that provide advertising & marketing services, entertainment content and services, as well as interactive media and content provider over internet or through software.
Energy - Companies that produce or refine oil and gas, oilfield-services and equipment companies and pipeline operators. This sector also includes companies that mine thermal coal and Uranium.
Industrials - Companies that manufacture machinery, hand-held tools and industrial products. This sector also includes aerospace and defence firms as well as companies engaged in transportation services.
Technology - Companies engaged in the design, development and support of computer operating systems and applications. This sector also includes companies that make computer equipment, data storage products, networking products, semiconductors and components.
Defensive – Companies which operate in industries that are relatively immune from economic shifts. These industries provide services that consumers require in both good and bad times.
Consumer Defensive – Companies that manufacture food, beverages, household and personal products, packaging, or tobacco. Also includes companies that provide services such as education and training services.
Healthcare – This sector includes biotechnology, pharmaceuticals, research services, home healthcare, hospitals, long-term-care facilities and medical equipment and supplies. Also includes pharmaceutical retailers and companies which provide health information services.
Utilities - Electric, gas and water utilities.
Product Involvement Explained |
Product Involvement metrics measure the percentage of a portfolio's assets exposed to a range of business areas and activities. For example, if a fund's involvement in Animal Testing is 20%, that means 20% of the fund's assets are invested in companies involved in Animal Testing.
Exposure percentages are calculated by summing the weights of a portfolio’s holdings in the companies involved in each area. In most cases a company is considered ‘involved’ in a certain area if it's revenue from that area exceeds a certain minimum threshold. In other areas, for example animal testing, abortion, contraceptives and human embryonic stem cell research, there is no revenue threshold such that if the company has any involvement at all in these areas, it will be considered involved. If a company is considered involved in an area, the entire weight of that company in a portfolio is counted when determining the overall percentages shown.
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ESG Pillars Explained |
Morningstar's ESG Pillar Scores help investors understand how a fund is performing in three key areas: Environmental (E), Social (S), and Governance (G). These scores break down the overall sustainability risk of a portfolio into these specific categories.
Each score reflects how much environmental, social, and governance factors contribute to the overall risk of companies in the fund. The scores are averaged based on the size of each company in the portfolio. Lower scores mean lower risk.
To receive these scores, at least 67% of the fund’s assets must be rated for their ESG risk. This provides investors with a clearer view of a fund’s exposure to sustainability risks in different areas.
Our Focus Funds list is created and managed by our Research team here at Willis Owen. It contains a range of active and passively managed equity, fixed income, and multi-asset funds which we think are high quality options.
We don’t make recommendations based on your personal circumstances but have designed the list to help take some of the legwork out of your research process. You could, for example, use it to identify fund options when building a portfolio in line with your objectives – whether to generate income, grow your capital or a combination of the two.
We’ve designed the list to help customers with differing levels of experience, risk tolerances and investment objectives. Whether you’re new to investing and don’t know where to start or an experienced investor who just needs a little help in identifying fund options. For further help, see Learn about investing.
Before we decide which funds should be included on our Focus Funds list, we have a number of key screening criteria a fund must meet, including:
We assess the fund's stock selection process and investment style to see how robust it is and to establish whether we believe the fund has the potential to achieve positive sustainable long-term returns.
We look at the manager's experience and their length of tenure. We will then evaluate the strength of the team working directly for the fund as well as the wider resources the team have access to.
We analyse the fund's short-term and long-term returns against its peers, any benchmark, as well as against other, similar funds. We will also assess factors such as a fund’s income yield.
We review the fund's risk profile, using a range of statistical measures and methods to analyse how volatile the fund has tended to be in the past as well as to get a view of how volatile it might prove to be in the future. We also compare the fund’s historic risk profile to is peers as well as its benchmark, focusing on whether excess risk has been rewarded with superior returns.
We assess the fund's asset allocation – the exposure to shares, bonds, and other assets as well as any guidelines regarding stock, sector, and regional limits.
We evaluate the fund provider's history of investment management, culture, resources (both financial and team) and whether the firm are appropriately aligned with the interests of investors. We also consider the strength of the governance processes in place to ensure that funds are appropriately managed and overseen.
We analyse the fund’s ESG philosophy as well as the fund’s ESG integration to determine the extent to which the fund is integrating consideration of these factors in its investment decisions. This is particularly important for funds with a specific ESG objective, where we look to ensure the process is robust, that there is genuine commitment to the objectives and that the process results in genuine improvements in ESG outcomes. We also look at factors such as Morningstar’s Sustainability Ratings along with ESG ratings from the likes of MSCI.
We evaluate the fund’s process for managing liquidity. We pay close attention to funds with any exposure to less liquid assets by looking at their allocation to small-cap and micro-cap stocks amongst other things.
We compare the fund’s ongoing cost and transaction cost to its peers and the broader sector in which it sits. We apply a rating system to determine how a fund’s fees compare against other similar funds. Where fees are above average, we find out why and determine whether they are justified. We also look at manager’s own assessment of value although we don’t rely on this in isolation.
Only when we're satisfied that a fund demonstrates its credentials across all these factors will we consider adding it to our list once it’s been approved by our Investment Committee.
Every fund is reviewed bi-annually, but we may review more frequently if we feel the fund is not meeting our expectations or if events occur which require an immediate review. We review the list regularly to ensure it is still meeting the needs of our customers, as a whole, as well as providing appropriate coverage of asset classes, sectors, and regions. You can find out more about a fund by clicking through the different tabs on the fund search page as well as accessing key information documents and detailed factsheets.
