Greystone Wealth Management · Greystone Wealth Management Introduction to risk-rated investment strategies ... value of a portfolio and is prepared to accept a higher degree of volatility

Greystone Wealth Management

Introduction to risk-rated investment strategies

July 2017

Investment Range

Investment Strategies with Risk Profiling


[1] INVESTMENT STRATEGIES – INVESTOR TYPES

What kind of investor are you?

At Greystone we seek to guide you with your investments by assessing and continually checking the levels of investment risk clients are willing and able to take, thus ensuring suitable investments are made on their behalf.

The aim should be to find a balance between the level of risk clients are prepared to accept and the level of return that may be expected from a portfolio of investments.

Attitudes to risk change?

A client's attitude towards, or appetite for, risk depends on their current circumstances and views with regards to investing. Having an inclination to take on more risk for the potential of greater returns exponentially increases the appetite for risk.

If a client’s attitude towards risk changes, this should be reflected in the makeup of their investment portfolio.

Attitude towards risk shall be influenced by “capacity for loss”, this being broadly defined as an ability to absorb falls in the value of an investment. As more risk is taken, an individual’s capacity for loss will need to increase proportionately.

We may define risk as the possibility of losing money and return being the gain on top of the original amount invested.

Investment strategies

Each investment portfolio is risk rated and will offer different characteristics in terms of the level of risk taken and potential returns. Assuming greater levels of risk increases the returns potential, however, requires an increased capacity for loss.

Hypothetical Return (%)

Source: Thomson Reuters Lipper for Investment Management & Greystone Wealth Management.

Data correct as at 30.06.2017.

0

5

10

15

20

25

30

0 5 10 15 20 25 30

Level of Risk (%)

Defensive

Conservative

Cautious

Balanced

GrowthAdventurous

Greater capacity for loss

Increased potential returns

Defensive Conservative Cautious Balanced Growth Adventurous

Hypothetical Risk Taken

Hypothetical Capacity for Loss

0

0.5

1

1.5

2

1998 2002 2006 2009 2013 2017

Vo

lati

lity

(%

)

-2

0

2

4

6

1998 2001 2003 2006 2009 2011 2014 2017

An

nu

alis

ed R

etu

rn

(%)

-0.4

-0.2

0

0.2

0.4

0.6

1997 2000 2003 2006 2008 2011 2014 2017

Mo

nth

ly R

etu

rn (

%)

-60

-40

-20

0

1997 2000 2003 2006 2009 2012 2015

Dra

wd

ow

n (

%)

Defensive Strategy

£100k

£200k

£300k

£400k

1997 2000 2003 2006 2009 2012 2015

Per

form

ance

Defensive Strategy

12 month volatility Target (0% to 1%)

Defensive Strategy

[2] INVESTMENT STRATEGIES – DEFENSIVE STRATEGY

Risk Profile

This is the least “risky” profile as it refers to investors who are unwilling or unable to accept any risk of loss of capital and are best suited to placing their money in a range of cash deposits. This will limit the potential returns of the portfolio and the value may be eroded in real terms by the effects of inflation. A typical investor in this band would have a zero capacity for loss with no ability to absorb falls in the value of their investment.

Return Oscillations Data correct as at 30.06.2017

Defensive Characteristics Data correct as at 30.06.2017

Risk level Very low

Typical risk score (out of 200) 0 - 25

Capacity for loss requirement Zero capacity

Typical minimum time horizon Less than 1 year

Potential for high gain Low

Volatility Target1 (annualised) 0% to 1%

Performance Target1 (annualised) 0% to 3%

Volatility Oscillations Data correct as at 30.06.2017

Hypothetical Asset Allocation Data correct as at 30.06.2017 Historical Growth of £100,000 Data correct as at 30.06.2017

Historical Statistics (Past 20 Yrs) Data correct as at 30.06.2017

Annualised Compound Returns 2.02%

Volatility 0.53%

VaR Value at Risk (95% confidence) -0.05% (daily)/ -0.09% (mthly)

Worst / Best (5 Year Performance) 1.26% / 22.78%

Maximum Drawdown -0.68% (-0.15% 20yr average)

Maximum Drawdown Period (months) 8

Maximum Loss (in a single month) -0.21%

Recovery Periods (months) 4

Maximum Drawdown Data correct as at 30.06.2017

Value at Risk (95% confidence interval) Data correct as at 30.06.2017

240 monthly observations over the previous 20 years. 7/240 returns below -0.09% VaR.

Returns Distribution (12 months) Data correct as at 30.06.2017

1 Year annualised returns Target (0% to 3%)

0

50

100

150

200

250

< -

45

-4

5 t

o -

40

-4

0 t

o -

35

-3

5 t

o -

30

-3

0 t

o -

25

-2

5 t

o -

20

-2

0 t

o -

15

-1

5 t

o -

10

-1

0 t

o -

5

-5

to

0

0 t

o 5

5 t

o 1

0

10

to

15

15

to

20

20

to

25

25

to

30

30

to

35

35

to

40

40

to

45

> 4

5

No

. of

12

mo

nth

per

iod

s

Return (%)

100%

Cash holdings

20 Yr Average


1 Volatility Targets and Performance Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

0

2

4

6

8

1998 2002 2006 2009 2013 2017

Vo

lati

lity

(%

)

-6

0

6

12

2000 2003 2006 2009 2011 2014 2017

An

nu

alis

ed R

etu

rn

(%)

-7.5

-5

-2.5

0

2.5

5

7.5

1997 2000 2003 2006 2008 2011 2014 2017

Mo

nth

ly R

etu

rn (

%)

-60

-40

-20

0

1997 2000 2003 2006 2009 2012 2015

Dra

wd

ow

n (

%)

Cash Conservative Strategy


60%

10%

10%

20%

Fixed Interest

UK Equities

International Equities

Alternatives£100k

£200k

£300k

£400k

1997 2000 2003 2006 2009 2012 2015

Per

form

ance

Cash Conservative Strategy


Conservative Strategy

[3] INVESTMENT STRATEGIES – CONSERVATIVE STRATEGY

Risk Profile

This profile is suitable for investors who are willing to take a little risk in order to grow the real value of a portfolio. It is appropriate for investors seeking a greater return than simply holding cash, who are prepared to accept an element of volatility in order to enhance the portfolio’s long-term income or growth potential. A small amount of risk must be taken to achieve modest or relatively stable returns. The typical1 range of returns experienced over the last 20 years has seen a maximum annual fall in value in a single year of around 9% and a maximum annual gain in value in a single year of around 15%.


Conservative Characteristics Data correct as at 30.06.2017

Risk level Low


Capacity for loss requirement Low

Typical minimum time horizon More than 3 years

Potential for high gain Below average







Volatility 3.88%


Worst / Best (5 Year Performance) 7.11% / 56.77%










1Typical refers to those movements in value experienced by 95% of investors; 5%, or 1 in 20 investors, experienced losses or gains greater than those stated. 2 Volatility Targets and Performance Targets may change over time to reflect market conditions. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated.

0

20

40

60

80

100

< -

45

-4

5 t

o -

40

-4

0 t

o -

35

-3

5 t

o -

30

-3

0 t

o -

25

-2

5 t

o -

20

-2

0 t

o -

15

-1

5 t

o -

10

-1

0 t

o -

5

-5

to

0

0 t

o 5

5 t

o 1

0

10

to

15

15

to

20

20

to

25

25

to

30

30

to

35

35

to

40

40

to

45

> 4

5

No

. of

12

mo

nth

per

iod

s

Return (%)

20 Yr Average

0

5

10

15

1998 2002 2006 2009 2013 2017

Vo

lati

lity

(%

)

0

3

6

9

12

2002 2005 2007 2010 2012 2015 2017

An

nu

alis

ed R

etu

rn

(%)

-10

-5

0

5

10

1997 2000 2003 2006 2008 2011 2014 2017

Mo

nth

ly R

etu

rn (

%)

-60

-40

-20

0

1997 2000 2003 2006 2009 2012 2015

Dra

wd

ow

n (

%)

Cash Cautious Strategy

45%

30%

15%

10%

Fixed Interest

UK Equities


Alternatives£100k

£200k

£300k

£400k

1997 2000 2003 2006 2009 2012 2015

Per

form

ance

Cash Cautious Strategy


Cautious Strategy

[4] INVESTMENT STRATEGIES – CAUTIOUS STRATEGY

Risk Profile

A cautious investor is willing to take low levels of risk to grow the real value of a portfolio and is prepared to accept a higher degree of volatility in order to enhance long-term income or growth potential. Cautious portfolios generally exhibit relatively modest yet frequent fluctuations in value. The typical1 range of returns experienced over the last 20 years has seen a maximum annual fall in value in a single year of around 13% and a maximum annual gain in value in a single year of around 19%.


Cautious Characteristics Data correct as at 30.06.2017

Risk level Below average


Capacity for loss requirement Below average


Potential for high gain Average







Volatility 6.71%


Worst / Best (5 Year Performance) -1.45% / 79.42%










0

20

40

60

80

100

< -

45

-4

5 t

o -

40

-4

0 t

o -

35

-3

5 t

o -

30

-3

0 t

o -

25

-2

5 t

o -

20

-2

0 t

o -

15

-1

5 t

o -

10

-1

0 t

o -

5

-5

to

0

0 t

o 5

5 t

o 1

0

10

to

15

15

to

20

20

to

25

25

to

30

30

to

35

35

to

40

40

to

45

> 4

5

No

. of

12

mo

nth

per

iod

s

Return (%)



20 Yr Average

0

5

10

15

20

25

1998 2002 2006 2009 2013 2017

Vo

lati

lity

(%

)

0

3

6

9

12

2004 2006 2008 2011 2013 2015 2017

An

nu

alis

ed R

etu

rn

(%)

-60

-40

-20

0

1997 2000 2003 2006 2009 2012 2015

Dra

wd

ow

n (

%)

Cash Balanced Strategy

25%

35%30%

10%

Fixed Interest

UK Equities


Alternatives£100k

£200k

£300k

£400k

1997 2000 2003 2006 2009 2012 2015

Per

form

ance

Cash Balanced Strategy


Balanced Strategy

[5] INVESTMENT STRATEGIES – BALANCED STRATEGY

Risk Profile

A balanced investor will be willing and able to take a medium level of risk to grow the real value of a portfolio. They must be willing to accept a greater level of volatility to enhance the long-term income and growth potential whilst the portfolio will be subject to frequent and, at times, significant fluctuations in value. The typical1 range of returns experienced over the last 20 years has seen a maximum annual fall in value in a single year of around 18% and a maximum annual gain in value in a single year of around 24%.


Balanced Characteristics Data correct as at 30.06.2017

Risk level Medium


Capacity for loss requirement Medium


Potential for high gain Above average







Volatility 9.95%












-12

-6

0

6

12

1997 2000 2003 2006 2008 2011 2014 2017

Mo

nth

ly R

etu

rn (

%)

0

20

40

60

80

100

< -

45

-4

5 t

o -

40

-4

0 t

o -

35

-3

5 t

o -

30

-3

0 t

o -

25

-2

5 t

o -

20

-2

0 t

o -

15

-1

5 t

o -

10

-1

0 t

o -

5

-5

to

0

0 t

o 5

5 t

o 1

0

10

to

15

15

to

20

20

to

25

25

to

30

30

to

35

35

to

40

40

to

45

> 4

5

No

. of

12

mo

nth

per

iod

s

Return (%)



20 Yr Average

0

10

20

30

1998 2002 2006 2009 2013 2017

Vo

lati

lity

(%

)

-4

0

4

8

12

2007 2009 2010 2012 2014 2015 2017

An

nu

alis

ed R

etu

rn

(%)

-60

-40

-20

0

1997 2000 2003 2006 2009 2012 2015

Dra

wd

ow

n (

%)

Cash Growth Strategy

5%10%

80%

5%

Fixed Interest

UK Equities


Alternatives£100k

£200k

£300k

£400k

1997 2000 2003 2006 2009 2012 2015

Per

form

ance

Cash Growth Strategy


Growth Strategy

[6] INVESTMENT STRATEGIES – GROWTH STRATEGY

Risk Profile

A growth investor will be willing and able to take high to very high levels of risk in order to achieve higher returns. It must be accepted that increased volatility may lead to a significant swing in portfolio valuations and the risk of substantial loss rises. The typical1 range of returns experienced over the last 20 years has seen a maximum annual fall in value in a single year of around 23% and a maximum annual gain in value in a single year of around 30%.


Growth Characteristics Data correct as at 30.06.2017

Risk level High


Capacity for loss requirement Significant


Potential for high gain Good







Volatility 13.58%












-15

-10

-5

0

5

10

15

1997 2000 2003 2006 2008 2011 2014 2017

Mo

nth

ly R

etu

rn (

%)

0

20

40

60

80

100

< -

45

-4

5 t

o -

40

-4

0 t

o -

35

-3

5 t

o -

30

-3

0 t

o -

25

-2

5 t

o -

20

-2

0 t

o -

15

-1

5 t

o -

10

-1

0 t

o -

5

-5

to

0

0 t

o 5

5 t

o 1

0

10

to

15

15

to

20

20

to

25

25

to

30

30

to

35

35

to

40

40

to

45

> 4

5

No

. of

12

mo

nth

per

iod

s

Return (%)



20 Yr Average

-30

-20

-10

0

10

20

1997 2000 2003 2006 2008 2011 2014 2017

Mo

nth

ly R

etu

rn (

%)

0

10

20

30

40

1998 2002 2006 2009 2013 2017

Vo

lati

lity

(%

)

5

7

9

11

13

15

2012 2013 2014 2015 2016 2017

An

nu

alis

ed R

etu

rn

(%)

-60

-40

-20

0

1997 2000 2003 2006 2009 2012 2015

Dra

wd

ow

n (

%)

Cash Adventurous Strategy

100%


£k

£100k

£200k

£300k

£400k

1997 2000 2003 2006 2009 2012 2015

Per

form

ance

Cash Adventurous Strategy


Adventurous Strategy

[7] INVESTMENT STRATEGIES – ADVENTUROUS STRATEGY

Risk Profile

Considered as being the most “risky” profile, this type of investment will require you to be willing and able to take very high to speculative levels of risk in order to achieve higher returns. As an investor you must be able to take on significant levels of volatility that may lead to substantial swings in portfolio valuations and over time there is the risk that the portfolio may fall to a zero value. The typical1 range of returns experienced over the last 20 years has seen a maximum annual fall in value in a single year of around 31% and a maximum annual gain in value in a single year of around 47%.


Adventurous Characteristics Data correct as at 30.06.2017

Risk level Very high


Capacity for loss requirement Possibility of total loss


Potential for high gain Very good







Volatility 17.52%












0

20

40

60

80

100

< -

45

-4

5 t

o -

40

-4

0 t

o -

35

-3

5 t

o -

30

-3

0 t

o -

25

-2

5 t

o -

20

-2

0 t

o -

15

-1

5 t

o -

10

-1

0 t

o -

5

-5

to

0

0 t

o 5

5 t

o 1

0

10

to

15

15

to

20

20

to

25

25

to

30

30

to

35

35

to

40

40

to

45

> 4

5

No

. of

12

mo

nth

per

iod

s

Return (%)



20 Yr Average

[8] INVESTMENT STRATEGIES – APPENDIX

Appendix of terms – how to interpret investment strategies

Risk Profile

Providing information on the type of client each portfolio may be suitable for. It will indicate the level of fluctuations in portfolio value and describe the “typical” range of returns that have been experienced over the past 20 years.

When we use the term “typical”, this refers to those movements in value experienced by 95% of investors; 5%, or 1 in 20 investors, experienced losses or gains greater than those stated.

Return Oscillations

Illustrating annualised returns for each portfolio over the past 20 years.

This is combined with performance target levels. The target levels are for a given percentage bandwidth of performance on an annualised basis.

Observations are monthly and over a period specified in portfolio characteristics as “typical time horizon”.

Strategy Characteristics

Looks at what broad level of risk can be expected from each portfolio type and where it lies on the risk scale for the Greystone Risk Assessment Questionnaire.

It states the typical (minimum) time horizon for investing in each portfolio and, during that period, what the performance and volatility targets are likely to be on an annual basis.

Volatility Oscillations

Based on rolling 12 month daily annualised standard deviations (volatility) over the past 20 years.

This combines rolling 12 month volatility figures with volatility targets as specified in the portfolio characteristics.

It will highlight periods where rolling 12 month volatility falls outside of the target levels.

Hypothetical Asset Allocation

Typically what each type of portfolio might look like in terms of the asset classes across which it invests.

Historical Growth of £100,000

Portfolio performance over the past 20 years for an investment of £100,000. The chart includes cash (except for the Defensive Strategy –which is defined as 100% cash).

Historical Statistics

Providing key statistical risk analysis for each portfolio type.

Annualised compound returns are stated.

Typically, as the annualised compound returns increase for each portfolio type up the risk scale, the risk side statistics will also increase.

Maximum Drawdown

Defined as the maximum loss from a peak to a trough for each type of portfolio, before a new peak is achieved.

The more “risky” a portfolio is, typically, the larger a maximum drawdown is expected to be.

Value at Risk

Value at Risk is defined as the theoretical maximum value a portfolio could lose in any given month.

We overlay this Value at Risk figure with monthly returns for each portfolio type over the past 20 years.

On the bar charts provided, all monthly returns are highlighted in grey. Those monthly returns which are negative and greater than the Value at Risk figure are highlighted in red. These red highlighted bars are those months where the portfolio lost more than the historic Value at Risk.

Returns Distribution

The distribution of portfolio 12 month returns over the past 20 years.

Notice that by moving up the risk scale for each portfolio type, the distribution of returns become stretched towards the extremities of the chart.


IMPORTANT INFORMATIONThis document is for professional investors, advisors and retail clients. It does not constitute a form of financial advice and should not be relied upon. This is provided for information only. At Greystone we seek to guide you with your investment strategies by assessing and continually checking the levels of investment risk you are willing and able to take, thus ensuring suitable investments are made on your behalf. Past, simulated past or future projected performance is not a reliable indicator of future performance and may not be repeated. Investment markets and conditions can change rapidly and as such any views expressed herein should not be relied upon when making investment decisions. Neither the payment of dividends or return of capital is implied or guaranteed. There is a risk of loss of capital. Rates of exchange may cause the value of investments to go up or down. The information and any opinions expressed herein may change at any time and therefore this document does not constitute investment, tax, legal or other advice or recommendation or an offer to sell or an invitation to apply for any product or service. Investors should consider carefully whether an investment in this fund or portfolio is suitable in light of circumstances and resources.

Greystone Wealth Management is a trading name of Foundation Investment Management Limited who are authorised and regulated by the Financial Conduct Authority. Financial Services Register Number 612117.

2017-Jul


Documents

Greystone Wealth Management · Greystone Wealth Management Introduction to risk-rated investment strategies ... value of a portfolio and is prepared to accept a higher degree of volatility