Philosophy & Approach
Over the longer term, investments in equities have traditionally provided an excellent hedge against the ravages of inflation and produced far higher returns than monies held on deposit.
The Barclays Capital Equity-Gilt Study, regarded as the most authoritative source of information in the UK on this subject, analyses returns from the three main asset classes, namely cash, fixed interest securities (bonds) and equities. The study covers UK equities since 1899 and US equities since 1925.
Based on 107 years’ records in the UK, (Barclays Equity Gilt Study 2007), equities have made real (net of inflation) annualized returns of 5.3% against 1.1% for Gilts and 1.0% for cash deposits.
However, the long term trend can hide significant departures from this – there have been sixteen ten-year periods for which performance figures are available in which equities have underperformed. Indeed, the ten year period ending in 2009 was the fourth worst on record and has been described by Barclays as the “lost decade” for equities.
Investors should take seriously the warning that “capital values can fall as well as rise”, and not regard equity investment as a one-way bet. However, it is also true that cash deposits suffer in periods of falling interest rates and that returns from Gilts will suffer in periods of over-supply.
It is the broad relationship that applies – equity investors are paid greater returns for taking greater risk – but periodic and often protracted departures from this general pattern have occurred and will do so in future.
Asset allocation – choice and timing of exposure – is the key to successful investment management. Outperforming the markets has become the Holy Grail of fund managers. They have not found it easy to achieve this goal consistently.
Another approach is the use of index funds, often called tracker funds, which seek to perform in line with a stock market index by buying and holding the securities that comprise that market index. The rapid growth in availability of Exchange Traded Funds (ETFs) in recent years has allowed managers to achieve this effect without the need to purchase the underlying shares and will increasingly become a feature of investment strategy.
The Lacomp Approach
The CF Lacomp World Fund invests in equities on a global basis through a combination of passive and active management.
Passive Exchange Traded Funds act as low-cost/low-maintenance holdings, whereas active management funds in areas where above-average returns are expected can add significant value.
The MSCI World Index is the benchmark, and the CF Lacomp World Fund seeks to outperform it over the medium term.
Risk & Reward
Considering the risk and the three asset classes – cash, bonds and equities – the consensus among most investors would be to consider cash the least risky, followed by bonds, with equities carrying the highest degree of risk.
However, whilst this is true in the short term, historic performance shows that it is precisely the reverse when viewed over the long term. The CF Lacomp World Fund should thus be regarded as a long term investment as short term deviations from this pattern can prove costly. Investors should maintain sufficient funds to cover short term needs and not rely on a ‘smooth’ equity return. The biggest risk for the equity investor is an enforced sale to meet a short term cash requirement.
It should be made clear that the CF Lacomp World Fund intends to be fully invested in global equities. At times, a part of the portfolio may be invested in areas that would be considered volatile or high risk although it will maintain a ‘medium’ overall risk profile.
The CF Lacomp World Fund has the ability to invest in bonds, unquoted stocks or even cash, and the Lacomp investment team will, in extreme circumstances, consider making use of this facility in order to adapt to prevailing market conditions.
The CF Lacomp World Fund is administered as Managers by the Capita Financial Group, a company specialising in that field. Using an established company with the relevant expertise to administer the Fund is cost-effective and ensures smooth handling of all transactions.
The unit price of the CF Lacomp World Fund is published daily in The Financial Times, under the Capita Financial Group entry in the Authorised Investment Funds section.
UK Stewardship Code
Lacomp plc is committed to complying fully with all the principles of the UK Stewardship Code.
Investment switches within the portfolio of the CF Lacomp World Fund do not incur Capital Gains Tax. When you sell your units, you only pay CGT on gains which exceed the CGT exemption applicable at the time of the sale.
The yield of the underlying assets is likely to be very small or nil, and any withholding tax at source, therefore, negligible.
In essence, this means that the capital growth within the CF Lacomp World Fund can be compounded year on year without being depleted by CGT in the interim.
Investing In The CF Lacomp World Fund
You can invest a lump sum or a regular monthly amount in the fund, either as a unit trust or as an ISA (Individual Savings Account).