Portfolio review: There is no time like the present

Checking your investments can help avoid shocks down the line

AS ANY savvy investor will tell you, careful asset allocation and risk management are key to long-term prosperity. But what many fail to appreciate is that even a carefully planned portfolio can become imbalanced over time, as different asset classes and geographical sectors perform at different relative speeds. As such, investors often face a shock when they do finally review their portfolio, only to discover it is no longer meeting their long-term goals.

Most experts recommend reviewing a portfolio every six to 12 months. Any more than this, and investors run the risk of making impulse switches in an attempt to time the market. “Often the most popular investment is the most expensive,” warns Darius McDermott of Chelsea Financial Services. And trying to time the market can result in hefty costs, from switching charges to account closure fees.

There may be other circumstances that can make checking your holdings worthwhile. For example, you may have bought a fund on the back of the performance of a star manager, “in which case you need to consider whether to stick with it once they move on,” says Jason Hollands of BestInvest. And with markets starting to adjust to a possible tapering of US quantitative easing, there may be no time like the present. “Equity markets have had a strong rally and correction before rising again – so it’s a good time to pause for breath and review what your portfolio looks like,” says McDermott.

If you are a long-term investor, your focus should be on the strategic positioning of your portfolio both geographically and across asset classes. But this doesn’t mean you can’t make some tactical short-term tweaks. If you’re reviewing your holdings, it is worth considering that “much of the fixed income market now looks vulnerable due to QE distorting prices,” says Hollands. Instead, he recommends investors shift their fixed income exposure into strategic bonds funds like Legal & General Dynamic Bonds.

And of the top ten performing funds in June, eight were invested in Japanese equities. “Japan remains the most attractive developed equity market, with greater scope for earnings growth and continued aggressive policy stimulus than any of its developed-market peers,” says Alan Higgins of Coutts. But the slowdown in Chinese growth means some experts are cautious on the market. And Hollands warns that the FTSE 100 has sizeable exposure to those commodities companies that have been hit by China’s slowdown, preferring multi-cap funds like Liontrust Special Situations. US equities, meanwhile, continue to perform well, but the market has a premium rating so opt for value funds.

Once you’ve sat down and looked over your investments, the next step could be to consider selling some of the better-performing investments to rebalance. By then reinvesting that money into the poor-performing funds, investors are “systemising the buy-low, sell-high approach,” says Jason Witcombe of Evolve Financial Planners.

Seeking professional advice is recommended. But if cost is a concern, it may be worth consulting the fund supermarkets, stockbrokers and others that offer free services for assessing your investments. BestInvest, for example, has a non-advised portfolio service (First), that looks at how well-balanced your investments are against its asset allocation models.

So keep a close eye on your portfolio. Failure to do so could mean you miss out on juicy returns.