Making Sense of Model Portfolios

How Wise Investment Helps You Stay Ahead

By William Geffen, Head of Investment Management, Wise Investment

At Wise Investment, we understand that the world of investing can sometimes feel like stepping into a maze. With terms like “model portfolios,” “active funds,” and “global index funds,” it’s easy to get lost in the jargon. That’s why we’re here to make things simple and clear. In this article, I’ll explain how our model portfolios work, the approach we take to managing them, and why our combination of active and passive investing strategies delivers strong results for our clients.

Let’s start by answering a key question:

What Is a Model Portfolio?

Think of a model portfolio as a carefully crafted template for investing. Each model is designed and actively managed by our expert investment team to meet specific objectives, such as targeting growth, generating income, or aligning with ethical principles. The goal is simple: to achieve the best possible results for investors within the model’s risk parameters.

When adjustments are made to a model, such as reallocating investments to respond to market opportunities, all the portfolios using that model update automatically. This makes it a seamless and efficient way to manage investments for a variety of needs.

 

Which Model Will I Be Placed In?

Choosing the right model portfolio depends on your individual goals and risk tolerance. Your financial adviser will work with you to determine the best fit. For instance:

• If you’re looking to grow your wealth over the long term and are comfortable with some risk, you might be placed in our Long-Term Growth Model.
• If you prefer to take a cautious approach or need access to your funds in the near future, the Defensive or Cautious Models may be more suitable.
• We also offer Ethical Models for clients who wish to prioritise sustainability and responsible investing.

 

How Are Model Portfolios Managed?

At Wise Investment, we take a global approach to managing our models, combining both active and passive strategies. Here’s how we do it:

1. Risk First

We start by setting clear “guardrails” for risk. Each model has a predefined risk profile to ensure it aligns with your comfort level. For example, a lower-risk portfolio will limit exposure to equities (stocks), as these tend to be more volatile than bonds.

2. Strategic Allocation

Each model has a standard mix of asset classes, such as global equities (for long-term growth) and high-quality bonds (to provide stability). This allocation reflects the balance we believe offers the best potential return for the risk level.

3. Tactical Adjustments

We’re not static—our investment team makes tactical adjustments within the risk guardrails. This could involve increasing exposure to specific sectors or introducing assets like property when we see an opportunity for added value.

4. Fund Selection

Once the asset allocation is set, we carefully select funds to implement our strategy. These funds typically fall into one of the following categories:

• Equities (Shares)
  For equities, we lean heavily on index funds, which track the performance of a market index, such as the MSCI World Index. Why? Because index funds are often more cost-effective and tend to outperform the majority of actively managed funds.

However, we don’t rely solely on index funds. We believe skilled active fund managers can deliver better results in specific markets or sectors, like emerging economies or specialised industries. For example, an active manager focusing on healthcare innovation might identify opportunities that a broad index fund would overlook.

It’s also important to be aware that global index funds are becoming increasingly concentrated in a few mega-cap US technology stocks (think Apple, Microsoft, and Google). While these stocks have performed exceptionally well in recent years, this concentration introduces risk. By blending active and passive strategies, we aim to provide a balanced and diversified approach.

• Bonds (Fixed Income)
  In the world of bonds, active management often delivers better results, as indexing here is less effective. Active managers can carefully select bonds with attractive yields while managing risks. For this reason, we often use large, diversified active bond funds and may add exposure to niche areas, like asset-backed securities, when we see potential value.
• Other Assets
  For alternative investments—such as property, commodities, or infrastructure—we rely on active fund managers. Their expertise in navigating these complex markets allows us to optimise returns for our clients.

 

Why Use Both Active and Passive Funds?

You might wonder, “If passive funds are cheaper and often outperform active funds, why not just stick with them?” The answer lies in balance. While index funds are excellent for broad, cost-effective exposure, active managers can add real value in areas where market inefficiencies exist or where specific expertise is needed. By combining the two approaches, we offer the best of both worlds, keeping costs low while capitalising on opportunities to outperform.

 

How Have the Models Performed?

The results speak for themselves. Over the past year, our models have consistently outperformed their benchmarks and delivered strong, positive returns for investors. Importantly, this success has been achieved while staying well within the risk parameters of each model.

 

Final Thoughts

Our goal at Wise Investment is the commitment to helping you achieve your financial goals with confidence. Whether you’re an experienced investor or just starting your journey, our model portfolios are designed to simplify the process and deliver results. By taking a global, risk-conscious approach and blending active and passive strategies, we ensure your investments are working hard for you every step of the way.

If you’d like to learn more about how our model portfolios can help you, speak to your adviser or get in contact with our team today.

 

 

 

Disclaimer: All investments carry a degree of risk. The value of investments can go down as well as up, and you may get back less than you invested. Past performance is not a reliable indicator of future results. For a detailed breakdown of our fees, download our Fee Schedule or contact us directly.