Investment Model Portfolios for Adviser Firms

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The Long Road Ahead: Investing for Millennials, Generation Z and Alphas

Many advisers we speak to are looking for an engaging way to handle investments for a younger generation, who, when investing, generally have a longer timeframe to work with.  We have also found that younger investors are the most likely to be engaged with environmental and social issues and are more likely to prefer an investment strategy that can provide positive outcomes beyond a healthy financial return. We believe that the GDIM Thematic Portfolio can help you to meet the needs of these investors.

The worlds of demographics and investment overlap in numerous areas and age is a key component in the decision on how one is likely to invest. Advisers are used to dealing with retiring ‘Baby Boomers’, or even the older members of Generation X, who tend to have a considerable nest-egg. However, their tolerance for risk is usually decreasing as they approach retirement.

Looking at the generations beyond these, we have:

  • Millennials, who will be between the ages of 25 and 39 this year, and should hopefully have some sort of savings or investment in place
  • Generation Z, who will be between the ages of 5 and 25 this year, who may have a Child Trust Fund, or Junior ISA invested on their behalf by a parent or grandparent
  • The Alpha Generation, who are still being born, and may have only their junior ISA, if they are lucky

The big advantage younger people hold over the Baby Boomers and older Generation X members is one of very few certainties in the investment world – that the earlier you start investing the better the outcome is likely to be.  Logically, the attitude toward long-term (25+ years) investing is generally thought to be that a higher risk-tolerance is appropriate as the investments can appreciate over several economic cycles and recover from any large falls.  But what might this entail?

There are several strategies that can be used when planning to lock away a lump sum, or set-up regular monthly savings plans, but most would contain an element of ‘high growth’, or ‘compounding’. We have used both of these strategies in different ways in our portfolios since their inception in 2009.

Speculate to Accumulate – High Growth Strategies

Higher growth investments traditionally consist of significant allocations to emerging markets and Asia, smaller companies, or high growth thematic trends such as technology.   The data below shows the impressive returns that investors in these assets would have achieved over the last 30 years (to the start of this year), with the best return coming from Chinese equities, which would have turned a £10,000 investment into over £450,000 over this period.

Percentage growth of equity asset classes since 1st January 1990Graph of Percentage growth of equity asset classes since 1st January 1990

Slow and Steady – Compounding

Another highly popular school of thought is that of the power of compounding, coined by Einstein as the 8th wonder of the world, which steadily grows a portfolio and appreciates at a more consistent pace.  A well-diversified global equity portfolio, especially one rich in dividend-payers, would provide a less volatile experience in stock markets as well as providing strong appreciative growth.

The GDIM Thematic Investment Model Portfolio

We have now created a new Investment Model Portfolio that is designed for the long term and the future. It is suitable for investors who can tolerate more of the considerable movements in markets as well as containing investments that are tuned in to forward-looking themes such as digitalisation, robotics, artificial intelligence and cybersecurity, to name a few.

The GDIM Thematic portfolio can provide a solution which invests in multi-generational themes in a concentrated fashion and also includes a significant proportion of ethically-screened and positive impact assets that we believe will lead the way over the next few decades (see our blog, ‘Investing in the Ethical Revolution’).

The highest growth element, judging by previous decades’ performance comes from exciting opportunities in China, India and other accelerating regions in Asia and other emerging markets.

A combination of specifically targeted, rapidly-developing areas of high innovation and major social change make up a portfolio that we do not expect will beat the market every year, especially in times of weakness, but that should appreciate substantially over the long-term.  The diverse nature of thematic investments means that different areas of the portfolio should be able to appreciate at different times, thereby building in an element of diversification.

If you would like to know more about this portfolio, or any aspect of how we invest, please do get in touch.

Tom Sparke GDIMTom Sparke IMC CertPFS (DM)
Investment Manager | Associate Director