As we move closer to the implementation of the EBI portfolio changes, I wanted to update you with more detail on why I am recommending the new Vantage Earth portfolios, as well as some operational developments with timings and cost.
Why switch to Vantage EBI Earth?
EBI has been working over the past 12 months to create a portfolio which allows you to:
Maximise returns for your level of given risk and
Combine Environmental, Social and Governance (“ESG”) screening criteria.
I have previously spoken about ESG so I will speak mainly here about the investment strategy.
Firstly, it is worth mentioning that the investment strategy is prioritised over ESG. This means the goal of Vantage EBI Earth is primarily to maximise your return for your given level of risk. The secondary objective is to cut carbon emissions to meet the conditions of the Paris Climate Agreement and to exclude certain sectors (such as weapons manufacturers) where the investment strategy allows.
The following goes into some light technical detail, but it is worth gaining an understanding how this approach is likely to be of benefit to you. The table below shows important characteristics of your current investment solution; Vital EBI UK Bias, compared with the newly constructed portfolio Vantage EBI Earth. The table only provides an illustration for Portfolio 100, the highest risk option.
There are three characteristics we regard as important when selecting appropriate investments for our clients:
Risk/volatility
Maximum historical loss
Expected return
When choosing the optimal investment solution for my clients, my primary objective is to ensure that the investment returns are maximised for any given level of risk. I also want to make sure my clients are comfortable with the highest historical loss associated with each portfolio, given previous market corrections.
Looking at the table, there are two points I would like to highlight:
The columns relating to risk (Volatility/Risk and Maximum Historical Loss) are lower for Vantage EBI Earth compared to Vital UK Bias.
This means you are taking less risk with Vantage EBI Earth.
The simulated historical return is higher for Vantage EBI Earth.
This means for each unit of risk you are taking your expected return should be higher.
Using a car journey analogy, it is expected you will arrive at your destination (say, retirement) quicker (higher return) and the ride is expected to be smoother (less volatility along the way).
Given the above, we have concluded that Vantage EBI Earth is likely to be a more robust suite of portfolios than Vital EBI UK Bias. For this reason, I am recommending you move your existing investments with EBI into the corresponding, risk-rated Vantage EBI Earth portfolio. As explained in my earlier e-mails, my wife and I will be moving our own investments and pensions into Vantage EBI Earth, as soon as the portfolios become available.
Timings
EBI originally aimed to bring the portfolio changes in early May but they have subsequently communicated to me that this has now slipped by several weeks. This is due to regulatory delays due to COVID-19 and is completely outside of EBI’s control.
Cost
As previously mentioned, EBI has negotiated institutional discounts for the new portfolios of between 0.06% to 0.11%. This means you are gaining access to the new range at a cheaper rate than would have been the case without EBI’s institutional buying power; I should point out that these portfolios are not available to the general public.
In my previous e-mail I made a cost comparison which showed that the new portfolios were a little cheaper than the old. Unfortunately, EBI had not included in its figures its own annual fee of 0.12%, this has obviously increased total costs slightly, they have apologised for this omission. EBI have now corrected the cost comparison table and the updated figures can be seen below.
Despite this very small increase in overall costs, I remain satisfied that the benefits of the new range of portfolios more than make up for this. Although this is my recommendation, you will be under no obligation to make these changes, if you do not wish to do so.
Please do not hesitate to contact me if you have any concerns or questions relating to the planned improvements.
I will be writing to you again to seek your permission to implement the recommended changes, over the course of the next few weeks.
Yours sincerely,
Graham Ponting CFP Chartered MCSI
Managing Partner
