Monthly Archives

February 2023

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Investing with Conviction

By | Investments

When selecting funds to add to an investment portfolio, many are attracted by actively managed investment funds, rather than passive funds, that aim to track an index. One of the most obvious reasons is that a passive investment, which replicates some or all of the components of an index, is unlikely to ever outperform the benchmark index.

Passive investments do, however, carry some advantages over actively managed funds. Passive funds provide broad exposure to an index, and generally carry low fees. That is why we hold an allocation to passive investments within our own discretionary managed portfolios, to provide an element of broad market exposure.

Our investment approach also looks to add actively managed funds, where a manager or management team select positions within their universe of stocks or bonds. The aim of active management is, of course, to select the best performing positions within the portfolio, and avoid the weaker performers, thus outperforming the representative benchmark. Active management does, however, come with a cost in terms of higher management fees, and it is therefore important that investors get good value for money.

Selecting active funds to hold in a portfolio can be a daunting process, due to the sheer number of funds available to UK investors, and this process isn’t made any easier as some active funds hold a very diversified range of positions. These “pseudo-trackers” potentially only produce returns that deviate from the index return by a small margin. This over-diversification may well lead to portfolio returns that closely follow the benchmark, which may prompt the investor to question what benefit the active manager can provide over a passive portfolio approach. This is particularly important when considering an Equities passive fund can carry an annual management charge of 0.10% per annum, compared to actively managed funds, where annual management charges of between 0.75% and 1% per annum are typical.

At the opposite end of the investment spectrum are what we describe as “high conviction” funds. These are funds with a very different investment approach and tend to hold a concentrated portfolio of investments within the fund. This can be as little as 20 stocks, but typically falls in the range of 30-60 stocks, which may well be highly concentrated when considering the universe in which the fund operates.

By constructing a concentrated portfolio, the manager will look to hold larger positions in stocks that aim to outperform, which in turn can improve the fund performance compared to the benchmark. High conviction funds tend to focus very heavily on stock selection, and as a result, portfolio turnover may well be lower than average. Furthermore, managers may well look to stick with positions through a market cycle, which can mean that funds can weather uncertain market conditions.

Selecting high conviction funds places greater emphasis on careful fund selection, as the decisions taken by the manager, or management team, have a much larger influence on returns. This is where expert fund analysis, focusing on the strategy adopted by the managers and careful review of the manager’s track record, can help identify high conviction funds with the best chance of outperforming benchmark returns.

When constructing our portfolios, the FAS Investment Committee meets regularly with leading fund houses and question the active managers directly to gain a better understanding of the investment approach adopted. Combined with advanced quantitative fund selection tools, our experienced team can filter the large number of funds available to UK investors, with the aim of selecting a number of high conviction funds to blend with broad passive market exposure. We feel that taking this disciplined approach to fund selection and portfolio construction can lead to strong and consistent returns over time.

If you would like to hear more about our investment strategy, please speak to one of our Financial Planners here.


The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.

Graphic of the word Tax with a pair of scissors representing tax changes in the new Tax Year

Tax Year end planning

By | Tax Planning

With the end of the Tax Year just around the corner, now is the time to consider any important planning decisions that are needed to ensure that your finances are as tax efficient as possible. This is particularly important as allowances are often lost if not used. The beginning of the next Tax Year heralds a number of changes to tax allowances affecting both Capital Gains Tax and Income Tax, so perhaps even more than ever, it is a good time to reassess the tax-efficiency of your investments and savings.


Make use of the ISA allowance

Individual Savings Accounts or ISAs have become a popular choice for savers and investors over recent years, as they enjoy a preferred tax treatment, whereby all income, interest or dividends generated from the assets held in the ISA are exempt from Income Tax, and any gains made on disposal are free from Capital Gains Tax. An ISA can hold Cash or Stocks and Shares and other investments, and irrespective of which ISA or ISAs are selected, the total contribution limit for adults across all ISAs in the 2022/23 Tax Year is £20,000. Taking full advantage of the allowance is important for anyone who pays Income Tax on their savings or dividend income or wants to avoid Capital Gains Tax on future gains.

The Junior ISA allowance is £9,000 in the current Tax Year. Junior ISAs let you save and invest on behalf of a child under 18 in a tax-efficient manner, and as with the main ISA allowance, this allowance is lost if not used.


Review Investment Portfolios

For those who hold investments outside of an ISA, it is more important than ever to consider whether it would be sensible to use the annual Capital Gains Tax allowance. This allowance covers the gain on disposal of assets (such as shares, investments and second properties) and in the current Tax Year, the allowance is £12,300 per person. In the 2023/24 Tax Year, this allowance will more than halve to £6,000 and then halve again to just £3,000 in the 2024/25 Tax Year. Any gains in excess of this allowance are taxed at 10% or 20% (in the case of investments) and 18% and 28% (for property), with the tax rate dependant on the overall tax position of the individual.

The Capital Gains Tax allowance can’t be carried forward, so it is important to consider whether it would be appropriate to sell assets to use the available Capital Gains Tax allowance, in particular as the allowances will be significantly reduced in future Tax Years.

The annual Dividend Allowance is also reducing from 6th April 2023. In the current Tax Year, the first £2,000 of dividend income is tax-free; however, this will fall to £1,000 for the 2023/24 Tax Year, and then to £500 from 6th April 2024. This will mean many individuals who currently avoid Tax on their dividends will begin paying 8.75% (for a basic rate taxpayer), 33.75% (for a higher rate taxpayer) and 39.35% (for an additional rate taxpayer) on dividend income that exceeds the reducing allowance.

Anyone with an investment portfolio that is not held in a ISA should be actively reviewing their investments to see if any action is warranted before the end of the Tax Year. This is where a comprehensive and independent review of existing portfolios could be a sensible step to take, not only from a tax-efficiency perspective, but also in terms of portfolio asset allocation and structure, and to review whether the portfolio continues to be appropriate for your needs and objectives.


Contribute to a Pension

As we approach the end of the Tax Year, now is the time to consider whether it is appropriate to make further pension contributions. Most individuals can make contributions of 100% of their earnings or £40,000 (whichever is the greater) in each Tax Year. Any unused Pension Annual Allowance can be carried forward for up to three tax years, and therefore anyone wishing to use any unused 2019/20 annual allowance has until 5th April 2023 to do so. For anyone who does not have a pension in place, and wishes to make large contributions in the future, making a contribution in the current Tax Year could mean that any unused Allowance in this Tax Year can be carried forward for use in the next three Tax Years.


Inheritance Tax planning

The annual Gift exemption is an annual amount that you can give away without having to pay any attention to the Inheritance Tax implications of making the gift. The annual exemption is £3,000 per individual, and couples could therefore give £6,000 away each Tax Year. This exemption can only be carried forward for a single Tax Year, so it is important for those who want to maximise this exemption to take action.

In addition to making gifts out of capital, surplus income can also be gifted away under certain circumstances. These rules are complex, but in short, if you have sufficient income and the amount you wish to gift does not reduce your standard of living, then making regular gifts of excess income could be sensible planning and reduce a potential liability to Inheritance Tax. We believe it is important to seek advice and guidance if you are planning to take advantage of these rules, and also to keep good records of actions taken.


The benefit of a holistic financial review

With the end of the Tax Year fast approaching, making use of available allowances is always important; however, we feel the changes to Capital Gains Tax and Dividend Allowance in the next Tax Year warrant extra attention before 5th April 2023. Speak to one of our experienced financial planners who will be able to undertake a holistic review of your finances to see whether any action is needed before the end of the Tax Year.


If you are interested in discussing the above further, please speak to one of our experienced advisers here.


The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.

Business man with laptop sitting on a log in a forest

The drive towards sustainability

By | Investments

The COP27 climate change conference held in Egypt concluded late last year with a number of key agreements that may impact investment decisions in the future. Perhaps the most eye-catching agreement was reached on the last day of the conference, as developed nations agreed to establish a dedicated fund to assist developing countries rebuild infrastructure caused by extreme weather events. The conference also reaffirmed the 2015 Paris Agreement, where nations committed to pursue efforts to limit global temperature increases, and also agreed to focus on low-emissions energy, through wind and solar, to carbon capture and storage.

So what does this mean for investors? Almost every company and investment fund has been influenced by the environmental agenda for some time, and the decisions reached at COP27 underline how businesses will need to consider the environmental impact of their operations in the future. Companies are already moving in a consistent direction of travel towards greater sustainability, better corporate governance and consideration of the social impact of their business.

This drive towards sustainability is being adopted by most global companies, although companies are moving in different ways and at different speeds. Common themes adopted by many companies is to reduce use of fossil fuels in the manufacturing process, moving away from single use plastic to recycled products, and switching to renewable energy sources. It is good practice as well as being good for the planet, as consumers are becoming increasingly conscious about the sustainability of the products they purchase, and companies want to be seen to be doing business with other companies that share similar views, ethos and outlook when it comes to sustainability.

Amidst the clamour to be more sustainable, it is important that investors can rely on the transparency of data, so that they can make informed investment decisions. Over 90% of the constituents of the S&P500 index now issue an annual Sustainability Report, and sets of standards have been introduced covering a diverse range of impacts, from use of natural resources, pollution and waste measures, to impact on local communities, human rights and anti-corruption.

Whilst undoubtedly a positive move, trying to provide investors with key data that allows comparison between different organisations is difficult, as one or more factors can be specific to a sector of industry. A further hindrance are the different measures used by the various global sustainability standards that companies use to prepare the reports, which can make interpretation of the results more difficult.

Given the importance that many investors, consumers and businesses now place on sustainability, regulators are becoming more concerned about “greenwashing”. This is where a company uses language and imagery that claims that its products are environmentally friendly or have a greater positive environmental impact than they actually do. Whether undertaken deliberately or innocently, a greenwashed product can tap into the growing desire that investors and consumers have to invest in a sustainable manner, and companies found guilty of greenwashing can be subject to reputational and financial damage. Take the case of Volkswagen, who admitted cheating emissions tests by adding software that recognised when engines were being tested and changed the engine performance accordingly. Not only did this cause significant reputational harm, but the company also suffered a financial penalty of $4.3bn*.

As awareness of sustainability increases, many investors appreciate that avoiding companies that harm the environment or promote what some may see as unhealthy products, such as tobacco or gambling, is difficult. This is why our Socially Responsible portfolios aim to take a common-sense approach, by focusing on those funds who aim to invest with sustainability in mind, but adopt a strategy that is not too restrictive so as to reduce the universe of available investments, which could potentially hurt investment returns over the longer term.

If you would like to move your portfolio towards a more sustainable footing, then speak to one of the advisers at FAS about our Socially Responsible portfolios, here.


*Source: –


The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.

Robot hand tapping on graphic of trading data

Robo-advice….system malfunction?

By | Investments

The financial services industry is often known for innovation, although not all ideas gain traction in a crowded marketplace. The first robo-advice services were born out of the financial crisis in 2008, when US firms Betterment and Wealthfront launched the first automated advice services, which were touted as major disruptors to the financial services industry. However, given the struggle that robo-advice firms face to turn a profit from their activities, and significant flaws in the efficacy of a robo-advice process, some are beginning to question whether robo-advice has a long-term future.


Automated advice

The journey to obtaining robo-advice is an online experience. Depending on the robo-advice provider selected, the website will ask a series of questions relating to an individual’s appetite for investment risk, time horizon for investment and other key factors. By using a computer algorithm, an investment portfolio is then selected from a small range provided. These portfolios are usually invested in passive investments, such as Exchange Traded Funds, and some services provide rebalancing of the portfolio at regular intervals.

Given that most robo-advice services only use passive investments, that track a particular index or set of indices, there is little ability for a fund to outperform markets generally. This is where investors can miss out on potential returns offered by actively managed funds, where costs are higher, but performance can exceed the index return over time. Of course, actively managed funds can also underperform their target return, and this is where the value of advice can help select good performing funds, which are reviewed regularly.

Robo-advice services are also restricted, which means that they can only provide advice on products and funds from a severely limited range. This is in stark contrast to an independent, whole of market advice service, who can select the most appropriate solution and select funds from across the market.


Limited range of options

As the decision-making process is automated, the investor has very limited control over the assets chosen by the algorithm used by the robo-advice service. Whilst some offer options to take into account ethical or socially responsible investments, there is little the user can do beyond this to tailor what is selected for their investment portfolio.

The advice service provided by a robo-advisor is very much hands-off. There is usually limited human interaction and the services lack the personal touch that face to face financial advice can provide. This is, in our opinion, the key flaw of robo-advice. The essence of the service that a human financial adviser can provide is that the advice given is tailored to each client’s specific needs and objectives.


Questions about suitability

Ensuring that investment decisions are suitable is a key component of effective investment planning, and this is where algorithms led by rudimentary questionnaires can leave significant gaps. A human adviser can really get to know and understand a client, considering elements such as their past knowledge and experience of investment markets and emotional reaction when talking about the potential for investment volatility. A holistic advice service can also consider wider financial planning considerations, such as making tax-efficient decisions to reduce current or future tax liabilities, and areas that clients often don’t immediately consider, such as protection needs. An automated service also cannot consider decisions outside of the computer algorithm; for example, whether a client should repay their mortgage rather than consider an investment or make a pension contribution instead of using their ISA allowance.


Not as cheap as one might expect

One of the key drivers towards an automated investment process is cost, and given the lack of human interaction, one would expect the overall cost of a robo-advice service to be low. This is an attraction to some investors who place a low-cost service at the top of their wish list, although we would contend that value for money is a more sensible metric for most investors to consider. That being said, despite the lack of personal advice, robo-advice is not cheap, with platform charges levied by leading UK robo-advisers higher than those charged by direct and advisor platforms who offer access to a wide range of fund options.


Making the breakthrough

Despite the higher charges, robo-advisers are struggling to gain traction, and the high financial cost of establishing the service and infrastructure, together with marketing in a crowded space, means that many services are some distance from profitability. Not helping this struggle is the average investment size held on robo-advice platforms. One of the biggest advantages robo-advice can offer is the ability to handle small investments, and many services do not stipulate a minimum investment size. Whilst this may increase user numbers, firms will struggle to make significant progress handling smaller portfolios. Global data compiled by Statista shows that the average size of a robo-advice portfolio is under £5,000, and if this trend continues over the longer term, charges may have to increase or service levels could fall, as firms try and move towards profitability.


No substitute for traditional advice

It is clear that robo-advice has a place in the crowded financial services marketplace, although they may struggle to gain mainstream traction. They have, however, provided positive benefits to the industry and have almost certainly helped push a digital revolution in the market which has been adopted by most providers, who now provide easy-to-use online access to funds held on their platform. This has also helped drive down costs and improve service levels offered by mainstream providers.

Whilst some may be happy to use a robo-advice service, we feel this is no substitute for independent human financial advice. Leaving investment decisions to a computer algorithm has the potential to lead to an investment portfolio that doesn’t suit an individual’s requirements, and not being able to factor in wider financial planning needs or tax considerations places robo-advice at a distinct disadvantage. Speak to one of our advisers for impartial, tailored advice with human interaction.

For more information on the above, please speak to one of our experienced advisers here.


The value of investments and the income they produce can fall as well as rise. You may get back less than you invested. Past performance is not a reliable indicator of future performance. Investing in stocks and shares should be regarded as a long term investment and should fit in with your overall attitude to risk and your financial circumstance.