Cantab Asset Management - Institutional Client Briefing Notes by Cantab Asset Management

Laying quality foundations

Welcome Welcome to Cantab Asset Managementâ&#x20AC;&#x2122;s Briefing Notes. As you turn the pages, you will find information on a variety of topics which I hope you will find of interest. Please contact me if you would like further information. My email address is david.saunderson@cantabam.com Kind regards

David Saunderson Chief Executive

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Creating order

Cantab Charity Service Cantab Asset Management’s Charity Service looks after a select group of charities and foundations in the UK and overseas. Absolute discretion and trust are the watchwords for our team. We work closely with trustees and advisers to provide the advice and expertise required for individual needs. We assist in the structuring of investments and the cashflow planning to address particular circumstances. We provide the professional skills to tackle the wide diversity of interests, trusts and charitable activities which may be involved.

Investment Process Our investment process involves the following steps: • We agree with Trustees an Investment Policy Statement. • We will work to establish the levels of risk and return which trustees consider appropriate and develop a financial plan to facilitate the achievement of objectives. • We operate a series of risk-rated portfolios, which act as our best ideas, but consider each client on an individual basis, as individual requirements may affect the most appropriate investment mix and fund selection. These may include considerations such as: expenditure needs; specific goals to distribute funds; whether a total return or income policy is used; existing holdings; and the institution’s wider asset position. • To build or review the portfolio, the starting point is to recommend a high level asset allocation strategy, in line with the client’s goals and risk profile. • Potentially, there may be different pots within the portfolio which are managed according to different strategies. For example, if some funds are earmarked for spending in the near future, with the rest intended for the longer term. • The next stage is to select investment funds in each asset class (e.g. UK equity, US, fixed interest, commercial property) to provide the exposure in each area, bearing in mind the client’s goals. Due to our independence, we review the whole of the market to seek the best options, free of bias or vested interests, and can draw on many different investment managers’ specialist expertise. • Each fund is reviewed on a performance and risk-adjusted basis within its sector, and to ensure that funds are chosen with complementary holdings and strategies. This allows access to different subsectors - e.g. large, medium and small UK companies - and helps to avoid overlap of holdings across different funds. • For some clients, we utilise individual shares and investment trusts where agreed with Trustees and can provide ethical screening where requested. • We provide both advisory and discretionary investment management services. Our discretionary investment service works to implement the plan, report back regularly to trustees on the performance and provide guidance on the achievement of desired objectives. The investment manager will create and maintain portfolios that are specifically designed for the trust and customised towards helping achieve objectives on a pre-agreed risk profile.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Alternative approaches We are creative and flexible and can provide trustees with innovative solutions to challenges that are faced as the interests of the charity are considered now and in the future. As you would expect from Cantab Asset Management, we will provide the professional skills and the business analysis and research to assist you to achieve your objectives. Please call David Saunderson on 020 3651 0570 or Jeremy Davis on 01223 52 2000 to discuss in more detail.

1 June 2016

Risk Warnings This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice as at 1 June 2016, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Offering direction

Our Advice Process for Institutions The advice we provide is tailored to each individual client and their needs. We offer a comprehensive service, providing investment advice and portfolio management. As Independent Financial Advisers, we consider the whole of the market, both in terms of products and investments, thus ensuring that each client’s financial arrangements are the most appropriate ones available to them. Being independent rather than restricted (see our separate note), we also fulfil the recommendation from the Charity Commission that large charities seek independent advice before making investments. We take pride in this personal approach and ensuring that our clients’ needs are at the heart of our recommendations. This document is designed to provide a summary of the services we offer, but it is not exhaustive, nor should it be relied upon as advice. The quality of our service is recognised by our Chartered Firm status awarded by the Chartered Insurance Institute.

Establishing a Relationship The first stage is to assess an institution’s current position, and understand its aims. We take into account a client’s attitude to risk and capacity for loss alongside their objectives and discuss options with an institution’s representatives before proceeding with our recommendations. Large institutions have bespoke needs and aims, and we service this requirement by providing bespoke investment advice to each institution we advise.

Research and Analysis Our experienced Investment Committee meets regularly to discuss economic conditions and provide guidance as to how this should impact on our advice. We use a suite of resources to monitor and research investment options. Our risk-rated model portfolios are structured and managed by our in-house investment team under the guidance of the Investment Committee to meet various core investment strategies. Current members of the Committee include David Saunderson (Chairman), Dr Jeremy Davis, Mark MacLean, Patrick Smyth and Dr Jonathan Middleton. Each Client Director, together with his/her team, follows our laid down investment advisory process and is responsible for the advice provided to clients. The investment team provides research and valuable insight into the investment markets which guide the recommendations to clients for their portfolios. The Cantab Research team conducts in-house quantitative and qualitative analysis of funds, investment trusts and individual equities and bonds. In addition, the team receives research from external organisations which is absorbed into the overall analysis before recommendations are made.

Managing Risk There are many types of investment risk, and whilst effective planning may manage or minimise overall exposure to risks, they cannot be avoided completely. Indeed, it may be that trying to avoid or minimise certain types of risks leads to greater exposure to others. For example, one may avoid putting capital at risk by holding cash on deposit, but there is a real risk of high inflation and low interest rates eroding its purchasing power: this is a particular risk for institutions which have long time horizons, possibly stretching decades into the future. There is a trade-off between risk and investment return. Therefore, it is important to understand that taking appropriate risks is a part of effective financial planning.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

One way in which we manage investment risk is via asset allocation. The asset allocation decisions on the model portfolios are formally made on a quarterly basis as a result of the deliberations of the Investment Committee and adjusted as appropriate in monthly reviews. These model portfolios then form a reference point for an individual review of each clientâ&#x20AC;&#x2122;s portfolio. Diversification within portfolios to include equities, fixed interest bonds, property and other asset classes reduces the risk of putting all oneâ&#x20AC;&#x2122;s eggs in one basket. Holding a geographical spread of equities allows investors to benefit from exposure to developing markets around the world as well as more developed markets such as the UK and the US. Furthermore, whilst blue chip FTSE 100 companies can provide a strong source of dividend income, mid cap and smaller companies - such as those listed on the FTSE 250 and their global equivalents - have historically offered greater growth potential. As with investments in general, asset allocation should be thought of as a long term strategy, with adjustments to take account of market conditions being made on a more gradual basis.

Investment Structures Our core approach, appropriate for most investors, is to use collective funds such as unit trusts and OEICs. However, we also advise on investment trusts and direct holdings, such as individual equities, bonds and gilts. Since investment trusts usually trade at discounts or premiums to their net asset value, these can be more volatile than open-ended funds, but this can also represent an opportunity to achieve a higher return. As such, investment trusts usually require more frequent reviews. Similarly, individual equities are more volatile than collective funds and require regular in-depth reviews. For these reasons, including investment trusts or direct equities would usually be more appropriate for larger investments. In addition to providing full investment advice and management, we are also able to provide a consulting service for large institutions. This allows them to obtain a second opinion before making investment decisions. Costs are an increasingly highlighted component of investment returns. The requirement imposed by the regulator for greater clarity and transparency about charges has led to increased competition within the industry and pressure for the charges paid to fund managers and platforms to be reduced. One of the many benefits of our independence is to allow us to select the most appropriate solution available from the whole marketplace, bearing in mind both the level of service provided and its cost-effectiveness. Like many other professionals, our annual management costs are calculated based upon time expended, transaction speeds, complexity of work and the amounts invested. Regular reviews are important to ensure that investments remain appropriate, and to ensure that our understanding of each clientâ&#x20AC;&#x2122;s situation remains up to date. It is important to note that investment performance can result in many percentage point differences in returns but charges, in general, are measured in fractions of percentage points. Thus we encourage the focus for clients to be more on investment returns rather than on charges, albeit these should be carefully monitored. 1 June 2016

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Cultivating assets

Discretionary Management Service Cantab Asset Management provides a Discretionary Management Service for clients as it strives to further improve portfolio performance, reduce administration time for clients and facilitate the integration of financial planning and investment management. The mission of the firm is to assist private clients, trusts and charities to create, preserve and protect capital to meet their needs and objectives. The investment philosophy of the firm is:

1) 2) 3) 4)

To achieve diversification through a range of asset classes. To manage the investment risk by proportionate use of the asset classes. To meet objectives through the selection of appropriate fund managers. To review investments regularly for acquisition and for sale.

As a firm, we seek to employ the best people, to use the best systems and to maintain the highest professional standards.

Bespoke Client Portfolios Each client portfolio is bespoke but with the nature of our research and investment process there is a high level of commonality between portfolios. We invest predominantly in collective investments including unit trusts, investment trusts, and ETFs. However, we do invest also in individual ordinary and preference shares, gilts and corporate bonds. We take on equity portfolios for management although we do this on the basis that over time these portfolios will be converted to include collectives to increase diversification and reduce risk unless specifically requested to do otherwise by a client. For existing portfolios, we rationalise holdings (tax permitting) focusing on larger capitalisation UK equities. We do manage portfolios to take advantage, where applicable, of the annual CGT allowance. We manage funds within pension fund wrappers such as Self Invested Personal Pensions and Small Self Administered Scheme portfolios. We also manage funds within ISA wrappers and offshore bonds. We use a range of indices to compare portfolio performance, many of which are considered industry standards. Within this range, we work with our clients to select the most appropriate indices for each individual portfolio. Each client has a Client Director in the firm and is introduced to the Directorâ&#x20AC;&#x2122;s staff team as appropriate. Client meetings are usually held at least once per year and formal valuations with our investment commentary are provided every six months. Ad hoc valuations are available online after client registration has been completed. A monthly investment note is posted on the website. We provide annual tax reports for both income and capital gains after the tax year end.

Investment Governance The firm has client teams with support services from Investment Research, Compliance and Operations. The Chief Investment Officer has worked at the firm (and its antecedent firm) since 2002 and has been working with the Investment Manager since 2006.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Asset allocation is determined by the Investment Committee which meets formally every quarter. Equity valuations, bond pricing, interest and exchange rate outlook, unemployment and GDP outlook are among the factors that are considered during the meetings. The relative merits of each asset class and geographical region in relation to one another are reviewed in order to decide on the asset allocation strategy. In response to rapidly changing market conditions, ad hoc meetings are held as necessary. Meetings are chaired by the Chief Executive and membership comprises the Chief Investment Officer, all Client Directors, the Investment Manager and two senior analysts. Our risk approach is based upon asset allocation, diversification within portfolios and position sizing within portfolios.

Investment Process Our investment process, based upon our philosophy, can be broken down into four component parts:

1) 2) 3) 4)

Macro strategy which leads to the asset allocation decisions Securities and fund research which leads to the fund, equity and bond selection decisions Assessment of client objectives, attitude to risk and tax implications which leads to portfolio construction decisions Review and monitoring of investments on an on-going basis

Our in-house research forms the cornerstone of our investment process and is the starting point for building client asset allocations and the eventual deployment of capital. In the fast-moving and volatile macro-economic environment of the twenty first century, it is crucial to stay on top of market-shaping events. The first stage of this process is the formation of a broad top-down macroeconomic view which we use to frame the relative attractiveness of a range of asset classes. The investment management team meet formally on a regular basis in order to discuss views on recent macro events and data, and to determine how these changes should be addressed within our asset allocation decisions. Once we have adjusted our asset allocation decisions, we are then able to fill out these allocations using the universe of funds that we have at our disposal. Our independent status and size means we have unfettered access to the full range of funds and other securities that are on the market. The process by which we choose funds from this point takes in a whole range of considerations: balancing factors such as risk/return calculations, liquidity constraints, manager track record, availability and fees. These processes are fluid and continuous, giving us the scope to make acquisitions and disposals in a pro-active, not reactive way, and we aim to be able to anticipate and benefit from important market turning points instead of being merely swept along by them.

Investment Monitoring Investments are monitored on an on-going basis. As the investment team spends the majority of its time researching fund managers and asset class opportunities the team is in a constant cycle of assessing and reviewing investments. The high levels of commonality amongst our portfolios mean that we are able to make changes quickly in response to changes in the economic environments or at the individual fund level. Within client portfolios, we do take some currency risk in that certain overseas holdings may be denominated in foreign currencies. However this is undertaken where we have strong views based upon our economic research. Ultimately, the majority of our clients have sterling based liabilities and it is unlikely that any more than 25% of a client portfolio would be invested in non-sterling denominated assets. Currency selection and the decision to hedge an investment is made during the asset allocation process, for example we may wish to expose a client to the US equity markets but not the US dollar. In this situation, we would buy a fund which actively hedges its holdings back into sterling. In the main, we manage portfolios whose base currency is sterling. The vast majority of our clients are UK-centric investors and as such we dedicate our time and resources to researching sterling assets which will best meet their needs. Please contact David Saunderson, Chief Executive, on 020 3651 0570 to discuss in more detail or email david.saunderson@cantabam.com.

1 June 2016

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Recommending a route

Independent or Restricted Advice? As from 1 January 2013, investment advisers have to state whether they provide ‘independent’ or ‘restricted’ advice. Cantab Asset Management Ltd is an ‘independent financial adviser’ providing advice on all areas of private client finance and providing access to all products from across the market. Independent advisers are the only category of adviser providing unbiased and unrestricted advice for a client based upon a comprehensive and fair analysis of the whole of the marketplace and all of the relevant tax wrappers. Our view is that it is in your best interest to appoint an independent adviser in order that your finances may be managed in a comprehensive and holistic manner with all options available and considered to arrive at the best solution. The Financial Conduct Authority writes on their website: “If you are getting advice about investing your money, you need to know there are two different types of financial advisers – ‘independent’ and ‘restricted’ – and this can affect the advice you are given. Some advisers can offer the full range of financial products and providers available, and are called ‘independent advisers’. But many advisers have chosen to offer ‘restricted advice’ and will focus on a limited selection of products and/or providers. All financial advisers have to be approved or authorised by us. Both independent and restricted advisers must pass the same qualifications and meet the same requirements to ensure they are providing suitable advice. An adviser or firm has to tell you in writing whether they offer independent or restricted advice, but if you are not sure which they offer you should ask for more information.”

Independent advisers An adviser or firm that provides independent advice is able to consider and recommend all types of retail investment products that could meet your needs and objectives. Independent advisers will also consider products from all firms across the market, and have to give unbiased and unrestricted advice. An independent adviser may also be called an ‘independent financial adviser’ or ‘IFA’.

Restricted advisers A restricted adviser or firm can only recommend certain products, product providers, or both. The adviser or firm has to clearly explain the nature of the restriction. If you are not sure you should ask for further information, but some examples of restricted advice are where: • The adviser works with one product provider and only considers products that company offers. • The adviser considers products from several – but not all – product providers.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

• The adviser can recommend one or some types of products, but not all retail investment products. • T he adviser has chosen to focus on a particular market, such as pensions, and considers products from all providers within that market. Restricted advisers and firms cannot describe the advice they offer as ‘independent’.

Other types of ‘advice’ If you are only given general information about one or more investment products, or have products or related terms explained to you, you may have received ‘guidance’ rather than ‘advice’. This is sometimes also called an ‘information only’ or ‘non-advice’ service. The main difference between guidance and advice is that you decide which product to buy without having one or more recommended to you. Buying an investment product in this way might reduce the cost involved but it also means you will not have access to the Financial Ombudsman Service or Financial Services Compensation Scheme (FSCS) if things go wrong. If you are not sure whether you are receiving guidance or advice, and therefore how you would be protected, you should ask the adviser or firm to explain.

Independent and restricted advice: key differences Independent adviser

Restricted advisers

Will consider all retail investment products

Yes

Can focus only on a particular market

Yes

Can consider products only from certain product providers

Yes

Has to explain to you the type of advice they offer

Yes

Can use ‘independent’ to describe the advice they offer

Yes

Incentivised to recommend one product over another

Please call our Chief Executive, David Saunderson, on 020 3651 0570 to discuss your situation.

1 August 2016

Risk Warnings This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice as at 1 August 2016, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Rosa Cantab: growing assets

FT Private Client Wealth Management Guide 2016 “Cantab Asset Management takes the honours over a five-year period for the average balanced portfolio…” Balanced Portfolio 1 Year

3 Years

5 Years

Cantab Asset Management

6.80%

33.07%

47.55%

Saunderson House

2.80%

23.60%

32.00%

Brooks Macdonald

3.55%

22.37%

28.17%

Quilter Cheviot

1.08%

18.79%

27.08%

Smith & Williamson

1.54%

16.79%

26.47%

Close Brothers

3.06%

19.13%

26.23%

Cazenove

1.40%

16.40%

26.00%

Barclays

2.80%

19.50%

23.80%

Ruffer

-0.10%

15.60%

22.50%

Standard Life Wealth

2.67%

12.09%

22.00%

Coutts

1.30%

16.30%

19.10%

Canaccord

0.37%

11.71%

14.54%

St.James's Place

0.12%

17.30%

The Financial Times publishes a guide to wealth management firms providing private client services. We were delighted to be singled out in the 2016 FT Private Client Wealth Management Guide for having the best performing average balanced portfolio over five years.

Asset Allocation The report considers the current asset allocation of a typical portfolio, giving us an opportunity to reflect on Cantab Asset Management’s investment approach. This reveals that the typical portfolio contains allocations to both hedge funds and private equity. This contrasts with Cantab Asset Management’s approach, which does not currently include these areas. The reasons for this are discussed in detail in our research notes; in summary, they are the lack of transparency and illiquidity of these funds, combined with the historical tendency of hedge funds to fail to act as a hedge. Cantab Asset Management’s preference for conventional assets (such as equities, bonds and commercial property) has proven to be valuable for clients.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Cantab operates a series of risk-rated portfolios, which act as best ideas, but Cantab considers each client on an individual basis. Individual requirements may affect the most appropriate investment mix and fund selection. These may include considerations such as: expenditure needs; specific goals to distribute funds; whether a total return or ‘natural’ income policy is used; existing holdings; and the client’s wider asset position. Cantab’s ‘Balanced portfolio’ takes a diversified approach to asset allocation, investing in Open Ended Investment Companies, ‘OEICs’, across the major asset classes. The Balanced portfolio has a 55% exposure to equities, 25% to fixed income, 10% to property and 10% to alternatives. 10% 10%

25%

Equity - UK Equity - Global Fixed Interest

25%

Property 30%

Alternatives

Added Value Returns are important. However, Cantab believes that clients benefit from long term relationships with the firm. Towards the end of the report, the FT’s Hugo Greenhalgh discusses the unsettling process of losing an adviser. Clients can have confidence in the longevity of the firm and the commitment of its advisers. Cantab’s roots go back over 30 years. Increasingly, wealth management goes beyond investment management. Cantab Asset Management supports this philosophy and provides all clients with financial planning as well as the management of investments. Tax planning, retirement planning and intergenerational planning are all included. The FT’s report reveals that this continues to set Cantab apart from many of the traditional investment managers. By avoiding the additional ‘frills’ which are sometimes included (such as concierge service) Cantab has kept fees down, below the typical wealth management fee, whilst achieving outstanding results for clients. The report also indicated that choosing an independent adviser is of great benefit to clients. Independent advisers are those which look at all available options and are free from conflicts of interest. Cantab Asset Management is pleased to be independent under FCA rules.

Conclusion In conclusion, the report provides an interesting discussion of some of the current issues in wealth management. As well as identifying Cantab Asset Management as providing top investment returns, the report points in the direction of some of the sources of those returns: asset allocation and independence. It also points towards the wider financial planning services as adding value for clients. These in-built advantages should continue to support the successful delivery of outstanding client service.

1 August 2016

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Shedding light

Looking at Alternative Asset Classes for Institutions In the last couple of years, some investment commentators have once again begun to advocate large allocations to alternative assets such as private equity and hedge funds. This article from Cantab Asset Management will seek to compare these asset classes with more traditional sectors, such as equities.

Hedge Funds Hedge funds are, as the name suggests, marketed as a means of hedging against possible market falls. They look to set a benchmark of a relatively high absolute return and strive to deliver this return in all market conditions. They do this by employing a variety of trading methods, usually including the use of derivatives and short selling of securities. In theory, use of this asset class is attractive. It provides the investor with the chance for continuing high returns in all market conditions, insulating the portfolio in a downturn without sacrificing returns in the good times. However, in practice, hedge funds have several downsides. The most obvious is the expense of these funds: they typically adopt a â&#x20AC;&#x2DC;2 and 20â&#x20AC;&#x2122; charging structure (charging 2% of assets plus 20% of gains each year). They are usually opaque and lacking in transparency, employing undisclosed proprietary methods to generate returns. This makes it difficult for an investor to truly understand their investment. Thirdly, they are usually illiquid, often offering withdrawals only once a quarter or sometimes less frequently. An exit from the fund, if it starts to perform poorly or the investor needs the funds, can be difficult. The largest issue with hedge funds, though, is that they are often a poor hedge. As seen in the 2008 crisis, hedge funds did not provide protection during a general market crisis. For these reasons, Cantab does not normally recommend them to clients.

Private Equity Private equity partnerships usually invest in private companies, providing funding for management buy-outs and buy-ins. These companies have the potential to deliver very good returns to investors as they may grow quickly and provide an excellent uplift on exit. However, we do not generally recommend private equity investments to our clients. Like hedge funds, private equity investments are illiquid. The money is tied up in private (unlisted) businesses, which are not easily saleable. In addition to the problems discussed above, private equity companies are affected by the lack of liquidity as their corporate nature means they are positively correlated with the equity market, meaning that an investor can potentially be trapped in falling positions just as the rest of their portfolio is dropping. The nature of private equity investments also means that an investor commits a certain amount to the private equity vehicle, with calls for the cash over a period of time. In the intervening period, the committed but uncalled money will likely be invested elsewhere. During the 2008 crisis, many private equity investors suffered because calls were made at precisely the time it was difficult to sell those other investments owing to lack of liquidity, creating an intense cashflow squeeze.

Adding value One of the main arguments for investing in these alternative asset classes is that it is difficult to achieve a return above the market in the main equity markets. This theory may have some validity in its country of origin, the US (although even there, some managers consistently outperform the index). In the UK, it does not appear valid. The US theory is that there are so many analysts covering the S&P500 that it is impossible to find something which has not already been found, and so it is impossible to find an edge. It is doubtful that this is true of the FTSE 100, and in the FTSE 250 it is certainly possible to find an edge by research. As a UK-based company primarily serving UK-based clients, Cantab believes it is possible to add significant value through investing in domestic equities. Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

The challenge for any active manager is to find areas where their research can achieve an edge for their clients. Historically, some managers of large endowments have found it necessary to look at more esoteric assets in order to achieve good returns. However, whilst the returns may be attractive, such assets are outside the mainstream for a reason: they are risky. As well as the obvious risk that volatility will result in a drop in value, the opaqueness of the investments makes them difficult to understand and liquidity is usually limited, making it hard to withdraw cash as required. Cantab believes that it is possible to achieve consistently good returns without running the risks of esoteric asset classes, as conventional equity investing in mainstream UK equities can provide returns ahead of the benchmark. If you would like to discuss how Cantab Asset Management may help your institution manage its investments, contact David Saunderson on 020 3651 0570 or Jeremy Davis on 01223 522000.

1 June 2016

Risk Warnings As always, it is important to have a well-diversified portfolio invested in all the major asset classes, in line with your objectives and attitude to investment risk. Any changes in asset allocation should be gradual, because of the difficulty with precisely timing the markets. Past performance is not a guide to future performance. The value of investments and the income therefrom is not guaranteed and can fall as well as rise due to stockmarket and currency movements. When you sell your investment, you may get back less than you originally invested. The value of overseas securities will be influenced by the rate of exchange which is used to convert these to sterling. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Striving for excellence

Active versus Passive approaches to Fund Management Background We, at Cantab Asset Management, believe in creativity and competition as stimulants to growth and excellence. We are believers in the creation of wealth through innovation and enterprise and taking the opportunity to participate in and support such wealth creation through the investment of capital in equity shares in limited liability companies. There will, naturally, be considerable variation in the performance of companies because of factors such as product success, management competence, market timing and the state of the broader economy. Assessment of these factors and others is important to the fund managers who manage the investment selections for clients. These fund managers are experienced in assessing risk and potential reward and they take their investment decisions after ‘top-down’ and/ or ‘bottom-up’ analysis. Our strategy is to employ leading fund managers in order to optimise performance over the medium to long term without exposing our clients to unnecessary risk.

Active and Passive funds Some academic research has suggested that buying ‘passive’ index tracker funds would enable clients to beat the average active manager by saving fees. We believe that this approach is not necessarily going to produce optimal results for clients because:

• Tracker funds under-perform the index after fees and trading expenses (the iShares FTSE 100 ETF tracker has fallen behind the index by 8% over 10 years compared to the FTSE 100 index over 10 years) and • Good choices by active managers can result in above ‘average’ performance.

The performance of the ‘average’ active fund manager is calculated by using a large universe of funds which inevitably includes ‘dog’ funds as well as the better performing funds. Our research and expertise is focused on selecting the better performing funds and avoiding the ‘dogs’.

100% 80% 60% 40% 20% 0%

iShares Core FTSE 100 UCITS ETF Inc GBP TR in GB

Lindsell Train CF Lindsell Train UK Equity Acc in GB

01/06/16

01/04/16

01/02/16

01/12/15

01/10/15

01/08/15

01/06/15

01/04/15

01/02/15

01/12/14

01/10/14

01/08/14

01/06/14

01/04/14

01/02/14

01/12/13

01/10/13

01/08/13

01/06/13

01/04/13

01/02/13

01/12/12

01/10/12

01/08/12

01/06/12

01/04/12

01/02/12

01/12/11

01/10/11

01/08/11

01/06/11

-20%

Europe 80% 60% 40% 20% 0% -20%

01/10/15

01/12/15

01/02/16

01/04/16

01/06/16

01/10/15

01/12/15

01/02/16

01/04/16

01/06/16

01/08/15

01/06/15

01/04/15

01/02/15

01/12/14

01/10/14

01/08/14

01/06/14

01/04/14

01/02/14

01/12/13

01/10/13

01/08/13

01/06/13

01/04/13

01/02/13

01/12/12

01/10/12

01/08/12

01/06/12

01/04/12

01/02/12

01/12/11

01/10/11

01/08/11

01/06/11

-40%

Jupiter European I Acc TR in GB

iShares MSCI Europe ex-UK UCITS ETF GBP TR in GB

Asia 60% 50% 40% 30% 20% 10% 0% -10% -20%

iShares MSCI Pacific Ex Japan Index TR in GB

01/08/15

01/06/15

01/04/15

01/02/15

01/12/14

01/10/14

01/08/14

01/06/14

01/04/14

01/02/14

01/12/13

01/10/13

01/08/13

01/06/13

01/04/13

01/02/13

01/12/12

01/10/12

01/08/12

01/06/12

01/04/12

01/02/12

01/12/11

01/10/11

01/08/11

01/06/11

-30%

Stewart Investors Asia Pacific Leaders B GBP Acc in GB

In addition, we show the performance of three actively managed funds which have been recommended to clients by Cantab Asset Management – Jupiter European with average annual growth of 11.51%, Lindsell Train UK Equity with average annual growth of 13.99% and Steward Investors Asia Pacific Leaders with average annual growth of 9.06%. These funds do not necessarily have similar levels of risk as the ETF Tracker. These funds have out-performed the relevant iShares ETF trackers by 6.68%, 8.64% and 4.87% pa respectively over this five year period.

Conclusion There may be instances where a passive tracker fund is of interest for a client, but our own analysis lends weight to our preference for active management in our model portfolios. As independent advisers, we do consider all options for clients and seek to recommend that which is appropriate for individual clients and their particular circumstances and objectives. This note should be read in conjunction with ‘Our Advice Process’ client briefing note.

1 June 2016

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Illuminating design

Investment Structures CANTAB ASSET MANAGEMENT

CLIENT

PLATFORM / CUSTODIAN

OPEN-ENDED INVESTMENT COMPANIES

INVESTMENT TRUSTS

STOCKS & SHARES

Cantab Asset Management (‘Cantab’) Cantab advises on asset allocation, fund manager and stock selection. Cantab can implement this advice for clients through either advisory or discretionary management arrangements. Additionally, Cantab provides support services such as financial planning, custodian selection and consolidated reporting across all investment portfolios. Cantab is ‘independent’ in regulatory terms as defined by the Financial Conduct Authority. This means that Cantab considers the whole of the market for clients. Cantab’s advice is unbiased and conflict-free.

Custodian & Platform The custodian selected by Cantab in discussion with the client, holds the investments and often provides stockbroking services. This structure facilitates efficient execution of trades and client assets are segregated from Cantab’s own assets.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Investments – Fund Managers Cantab may recommend fund managers for stock and bond selection where a manager’s specialist expertise is considered to be of value. Fund structures may include Open-Ended Investment Companies (OEICs), Investment Trusts and Exchange Traded Funds (ETFs). Cantab researches over 3000 collective funds, 300 Investment Trusts and 700 ETFs.

Investments – Direct Investments Cantab may select individual equities and bonds using investment research from in-house and external resources. Cantab researches over 2000 shares using its own proprietary ‘CAMBRIDGE’ method for analysing individual shares.

Investments Research Cantab has a team of analysts who conduct internal research and also access material from third parties. The analysts report to the section Heads for Funds, Investment Trusts and Equities. Reports are prepared each month for the Investment Committee and decisions on asset allocation, fund and stock selection are made by the Committee. There are provisions for interim decision making between meetings where applicable. The Investment Committee is chaired by Cantab’s Chief Executive and comprises the Chief Investment Officer, four Directors and the Investment Sector Heads.

1 November 2016

Risk Warnings This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice as at 1 November 2016, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to longterm investment. Past performance is not a guide to the future.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Discerning the times

Timing the Market – or Time in the Market? Many investors want to know where markets are heading. Buying when markets are low and selling when they are high is ideal in theory, but can this be done in practice? We found it useful to consider some historical perspectives to highlight some of the potential advantages and dangers of trying to time the markets:

“Buy Low and Sell High” or “Buy High and Sell Low”? Opinion remains divided about the viability of market timing strategies. Independent reviews of different strategies over 30 years generally conclude that their ability to predict the markets is no better than chance, with very few exceptions 1. Outspoken fund manager Terry Smith has said “there are only two types of investors – those who know they can’t make money from market timing, and those who don’t know they can’t”. In practice, history suggests that flows of money into and out of the market tend to follow, rather than lead, the level of the markets investors exhibit a tendency to be overconfident when markets are doing well and panic when markets fall. This is highlighted in the chart below from BlackRock, comparing fund flows in the US with the performance of the S&P500 index:

S&P 500 Index Performance vs. 12-month Equity Mutual Fund Flows $400

$25,000

$300

$20,000

$200

$15,000

$100

$10,000

$0 -$100 Jan-00

$5,000 $0 Jan-02

Jan-04

Jan-06

Jan-08

Net Equity Mutual Fund Flows (bn)

Jan-10

Jan-12

Jan-14

Jan-16

Growth of $10,000 in S&P 500 Index

Sources: BlackRock; Informa Investment Solutions; DB US Equity Strategy; Investment Company Institute (US mutual funds and ETFs). The S&P 500 Index is an unmanaged index that consists of the common stock of 500 large-capitalisation companies, within various industrial sectors, most of which are listed on the New York Stock Exchange. Returns assume reinvestment of dividends. It is not possible to invest directly in an index. The information provided is for illustrative purposes only and is not meant to represent the performance of any particular investment.

Of course, investor demand affects prices, so there ought to be a degree of correlation. Nevertheless, in both 2000/01 and 2007/08, money only started to flow out of funds once the S&P had suffered most of its falls. The chart also highlights the bravery needed to “sell high” in 2007 or “buy low” in December 2008. In the long run, the evidence suggests that timing works against investors, who end up buying high and selling low. 1 e.g. R Bauer and J Dahlquist:“Market Timing and Roulette Wheels”: Financial Analysts Journal vol 57 no 1 (2001) pp 28-40 and “Market Timing and Roulette Wheels Revisited”: Investment Risk and Performance Feature Articles (2012).

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Omitting The Bad Days Or The Good? Some recent comments have compared the returns for a buy and hold investor with the results of missing the best or worst days of returns. The results appear striking, but the reality is that the best and the worst days roughly cancel each other out, and without the ability to predict which days will be good or bad, these calculations are slightly academic. The chance that you miss a bad day is cancelled out by the risk that you miss a good day. More importantly, focussing only on the extreme days misses the main driver of returns; compound returns from small but steady gains. If we consider the S&P500 from 1 January 1995 to 31 December 2014, over 71% of daily capital returns in this period fell in the range -1% to +1%. For an investor in the index, the frequency of these â&#x20AC;&#x153;normalâ&#x20AC;? days and the compounding of their returns over time provided the bulk of their return at the end of the twenty years, contributing over 432% in capital growth. Include the compounded dividend yield and the total return rises to over 550%. Once aggregated together, the other 29% of days (those with returns of greater than 1% or less than -1%) make almost no difference to the overall return, contributing a small capital loss of 13%. Our conclusion is that time in the market is the most important factor in returns for a long term investor. The risk of missing out on compounded growth over time is much more important than potential gains from trying to time the markets.

Distribution of Returns What happens if we turn our attention closer to home and consider the performance of the FTSE100 in each quarter between 1 January 1986 and 30 September 2015 2? The split between quarterly periods with positive and negative returns is almost exactly 2:1. One might question whether returns were higher in the quarter following a negative period - i.e. is there a recovery bounce after a fall? In fact, the distribution of returns was remarkably similar; the positive/negative split remained at exactly 2:1, and the average quarterly return was only slightly higher (2.39% compared to 2.19%). So, picking a quarterly period at random, there is twice as much chance of losing out by being out of the market, compared to being invested. This gives further weight to the suggestion that time in the market is most important for an investor with long term objectives.

To Phase or not to Phase? The theory of phasing is that investing over several tranches at different times helps to smooth returns and reduce risk. Since markets fluctuate, the likelihood is that part of the investment will be made at peaks, and part at troughs, avoiding the risk of investing all at once into a peak, and accepting missing out on the opportunity that everything might be invested at a trough. If we accept that it is better for long term investors to be fully invested at all times and that we should not try to time the market, why discuss phasing? The answer is that returns should not be viewed in isolation from risk. This is illustrated by the table below, which compares the returns since 1 January 1986 from investing in the FTSE100 via a lump sum with phasing the investment over three tranches over successive quarters or years 3: Average Return Maximum Return Minimum Return Standard Deviation

Lump Sum 6.03% 10.87% 2.61% 1.84%

Quarterly Phasing 5.89% 9.38% 2.80% 1.74%

Annual Phasing 5.53% 8.03% 3.03% 1.41%

On the positive side, phasing an investment over three separate tranches reduces the variation in returns and the dependency of the outcome on the timing of entering the market. On the downside, phasing over successive quarters would have left investors worse off on 2 in 3 occasions. Split the phasing over successive years, and that rises to more than 3 in 4. Again, the conclusion from history is that time in the market is most important for an investor with long term objectives.

Summary In theory, successful market timing could add hugely to investment returns. In practice, the available historical evidence suggests that investors have been unable to consistently time the markets and that a long term investor would have been better off remaining fully invested. Whilst the past is no guarantee of the future, and market timing strategies may be able to consistently deliver outperformance in the future, we are yet to see evidence to support this. In addition, trading costs should not be ignored, as they can be a significant detractor for returns. Our conclusion is that investors with long term aims are better off remaining fully invested. For new investors, historical evidence also suggests that phasing an initial investment over the short term can reduce risk, for a small cost in returns. However, the longer the process is spread out, the longer the investor is out of the market, and the greater the chance of hurting returns.

Disclaimer This analysis is based on historical returns and is no guarantee of the future. 1 June 2016 Data from FE Analytics. 3 Analysis covers periods beginning at each quarter end from 1 January 1986 until 30 September 2010, and assumes investment is held until 30 September 2015 (i.e. a minimum 5 year period). Data taken from FE Analytics.

Risk Warnings. This document has been prepared based on our understanding of current UK law and HM Revenue and Customs practice as at 1 June 2016, both of which may be the subject of change in the future. The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority.

Long-lasting support

Trustee Responsibility Trustees of charities have a responsibility to direct the affairs of a charity so that it can continue to act to fulfil its stated charitable purposes. They must behave prudently and carefully in all their dealings regarding the charity. In general terms, several ‘common sense’ tests may be applied. For example, the test that trustees should take the same care when dealing with the charity’s assets as they would do with their own. This does not mean that they cannot take risks with the charity’s money (such as investing it), but it does mean that the assets must be used in a reasonable way. Further, investment matters can require particular attention, especially when trustees have limited investment expertise themselves. For this reason, the Charity Commission publishes guidance to trustees specifically dealing with the handling of investments. This advice is extensive, but two key points can be distilled from it: 1. When making investment decisions, trustees should usually take professional advice. 2. Trustees should ensure the advice they receive is impartial.1 Looking in more detail at the advice provided by the Charity Commission, the following points are the most important. Making investment decisions for a large and potentially complex set of assets owned by a charity can be difficult, and the interests of the charity are best served if someone with appropriate knowledge and experience is consulted in the course of making those decisions. Usually, having such knowledge and expertise will entail being an investment professional. It is not required by law that trustees seek the advice of a professional who is not a trustee: a trustee is allowed to provide the advice. Such a trustee, however, should be aware that they are liable to the charity regarding their advice as they would be to any other client (receiving no additional protection from being a trustee as well as an adviser). In most cases it will therefore be appropriate and recommended for trustees to take professional advice from a non-trustee. Similarly, trustees are advised by the Charity Commission to ensure the advice is impartial because that is in the best interests of the charity. If advice is impartial then trustees can be sure that the adviser is looking after the interests of the charity. For truly impartial advice, the whole of the relevant market needs to be considered in order to select the best option from all those available. Further, conflicts of interest must be eliminated. An example of such a conflict of interest would be a company advising on which UK equity fund to invest in whilst offering a UK equity fund on the market. For this reason, it is recommended that trustees ensure the advisers they consult are independent. Cantab Asset Management is well-placed to help trustees fulfil these requirements. Our directors benefit from combined investment experience of over seventy years. They are supported by research teams within the company considering the full range of investments, including collective investments and direct holdings. They are able to help trustees create a diversified portfolio to serve the charity’s needs and risk profile.

Charities and Investment Matters: A guide for trustees, p.19 (written by the Charity Commission)

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

As an Independent Financial Adviser, Cantab is able to advise on the whole market of investment products, and to do so in an unbiased way. This contrasts with restricted advisers, who may be biased in favour of their own investment funds or even prohibited from advising on other funds. Cantabâ&#x20AC;&#x2122;s independent status gives trustees the peace of mind of knowing they are receiving the best and fairest advice and helps them fulfil the Charity Commissionâ&#x20AC;&#x2122;s recommendation that the advice trustees receive is impartial. Cantab will consider the objectives of the charity and the attitude to risk of the trustees before making recommendations regarding investments. Income and growth requirements are considered when developing an investment strategy. Cantab will assist trustees in the development of a financial plan to meet objectives. In certain circumstances, Cantab will run multiple portfolios for charities to address different requirements. Please contact David Saunderson on 020 3651 0570 or Jeremy Davis on 01223 52 2000 for more details.

1 June 2016

Risk Warnings The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Providing security

Pension Protection Fund The Pension Protection Fund (PPF) was established to pay compensation to those people who are in defined benefit pension schemes which can no longer meet their commitments. The PPF is funded by a compulsory levy on ongoing defined benefit schemes. The PPF also takes over any assets of schemes which are transferred into the fund. This means that the fund has an increasingly substantial portfolio of assets of its own from which to meet its liabilities. If a defined benefit pension scheme cannot meet its liabilities and the employer who set up the pension scheme is also unable to meet the liabilities, the PPF will begin an assessment of the pension scheme to see if it should be transferred to the PPF. The scheme will not be transferred if it is rescued (by a new employer taking over responsibility for it) or if there are sufficient assets in the scheme to buy PPF-level benefits from an insurance company. During the assessment period, the pension scheme will continue to operate broadly as it was doing before the assessment period: those already retired will continue to receive their pensions and those eligible will still be able to take early retirement if allowed by the scheme’s rules (although their pensions will, as usual, be reduced accordingly). Only if it is determined that the scheme cannot be saved will it be taken over by the PPF. Once a scheme has entered the assessment period, trustees are only allowed to make transfer payments in cases where the agreement to do so was already in place before the scheme entered assessment. Even in these cases, the trustees may only make payments where they feel doing so will not disadvantage members who remain in the scheme, and may revise the transfer offer lower in order ensure that the transferring member is not paid more than the cost to secure the benefits they would receive under the PPF. If a scheme is transferred to the PPF, it is no longer permissible for members to transfer out. For those schemes which are transferred into the PPF, the fund will usually pay those who have already retired, or who have reached their scheme’s pension age, their full benefits. The PPF will also usually pay full benefits to those, regardless of age, who have at the time the scheme was unable to meet its liabilities either retired due to ill health or are receiving a pension in relation to someone who had died. Payments relating to pensionable service after 5 April 1997 will increase annually by the rate of inflation, subject to a cap of 2.5%. For those who have not yet reached the scheme’s retirement age, the fund will pay, on retirement, 90% of the benefits for which the employee would have been eligible, subject to an annually reviewed cap: this applies both to those who have not yet retired and to those who have taken early retirement but have not yet reached the scheme’s standard retirement age. The full details of the amount of the cap are available from the PPF. Currently the ‘base’ cap (for those aged 65) is £36,401.19 per annum for full benefits: as the fund pays 90% of full benefits this works out as an annual cap on the payout of £32,761.07. Overall, the PPF provides confidence for many people that, even if their employer fails to meets its pension liabilities then they will still receive almost all the income they expected in retirement. However, for higher-ranking professionals, the cap can mean that if their scheme were to be taken over by the PPF they would see a dramatic drop in their retirement income.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com

Therefore, it is particularly important for schemes serving such individuals that the trustees carefully manage the assets of the scheme to cover the liabilities. Otherwise, professionals who have been long-serving, loyal members of the company which established the scheme can suffer substantial cuts to their retirement income. Cantab Asset Management is able to provide advice on such liability-driven pension funds. We can provide recommendations to help schemes which are in deficit recover and maintain schemes in surplus. In doing so, we can help trustees to deliver on their commitments to scheme members.When considering liability driven investments (LDI), Cantab will have regard to the issue of low growth from fixed interest investments.Increasing benefits costs and market volatility have led Company Directors with defined benefit pension schemes to consider ways to de-risk their balance sheets. Many pension plans employ an LDI derisking strategy and this places the Company as the plan sponsor in somewhat of a dilemma. In a standard, dynamic glide path, you adjust exposures and/or risk profiles over time, based primarily on changes in the funded status of the plan. Typically, these glide path blue prints shift assets out of the growth portfolio and into the liability hedge as funded status increases. However, in a low interest rate environment, this glide path approach might result in a significant drop in expected returns, causing the plan sponsor to bear a higher cost of de-risking. We believe many glide paths are too regimented in their approach to risk reduction. This traditional approach means the glide path structure neglects the objective of maximizing return at each targeted level of risk. To achieve superior results, we advocate a more holistic and flexible approach to dynamic asset allocation.

1 June 2016

Risk Warnings

The opinions expressed herein are those of Cantab Asset Management Ltd and should not be construed as investment advice. Cantab Asset Management Ltd is authorised and regulated by the Financial Conduct Authority. As with all equity-based and bond-based investments, the value and the income therefrom can fall as well as rise and you may not get back all the money that you invested. The value of overseas securities will be influenced by the exchange rate used to convert these to sterling. Investments in stocks and shares should therefore be viewed as a medium to long-term investment. Past performance is not a guide to the future.

Cantab Asset Management Ltd 5th Floor, 8 Angel Court, London EC2R 7HP 020 3651 0570 cantabam.com

35 Hills Road, Cambridge CB2 1NT 01223 52 2000 advice@cantabam.com