Equities

Equities offer potential for substantial returns over the level of inflation but are considerably more volatile than most other asset classes.  

Growth is dependent on favourable economic conditions that allow good management with sound business models to expand their companies and provide returns for shareholders.  

The level of income, potential capital return, volatility and capital risk varies according to the type of share (e.g. large or small companies), investment sector (UK All Companies, UK Equity Income), geographical location (UK, Europe, America, Far East) and investment theme (Commodity and Energy, Emerging Markets).

Typically larger more mature companies pay larger more consistent dividends; smaller more dynamic companies offer lower dividends but have better growth prospects.

Foreign investments will link closely to their home economy and movements in the exchange rate of their currency against UK Sterling.

‘Theme’ or specialist funds will clearly benefit (and potentially suffer) from the general performance of their particular area of activity.

Despite their volatility, the attraction is that, over the long term, equities tend to outperform most asset classes offering a combination of capital and income growth over and above inflation.

Constructing an appropriate asset allocation WITHIN the equity sector is a fundamentally important element of the asset allocation process itself.

Property

Commercial property performed strongly and had low correlation with the other three main assets over the 3 – 5 years to mid 2007.  However, caution and research is required to identify appropriate funds, with clear investment process and objectives as well as performance history.

It has low volatility, but like all asset classes, Property has periods of low return or capital loss. Access to the invested fund may be at the managers’ discretion; sometimes notice of up to 6 months is needed, so Property should be seen as a long term part of an investment portfolio.

Property funds invest in ‘Bricks and Mortar’ (i.e. buildings) and/or ‘Property Shares’, which are the normal traded equity shares in property companies such as British Land, Land Securities, etc.

The distinction between these two investment types is critical. Property Shares prices can – and do – rise and fall quite dramatically, and can thus give quite dramatic returns, but do not generally have the lowly volatile profile of bricks and mortar investments. ‘Real’ property funds give low volatility and broadly secure income stream to a portfolio, but may not match the swift rise in value of Property shares in a strong market, nor the speed of decline when the property market is weak.