22 finance


The financial landscape needs skilled navigation


Managing wealth has always been a complex business and today, more than ever before, investors navigating the current financial landscape have a difficult job ahead of them, says Martyn Begbour, head of UBS southern business. Here Begbour outlines the views on the benefits of asset allocation and diversification


Over the past five years we have experienced the biggest financial crisis since the Great Depression. In unpredictable times, it is more important than ever that investors have a disciplined investment process to help them meet their financial goals. We believe in a core asset allocation approach that includes a longer-term strategic setting, overlayed with the flexibility to navigate market opportunities. Whether an investor’s primary investment objective is to protect or grow their wealth, understanding their objectives, investment time horizon, and risk tolerance are key elements to successful investing.


Some investors’ primary goal is capital growth while for others it is wealth preservation, whereby they generate sufficient returns to keep up with inflation. Regardless of the objective, perhaps the most critical stage of the investment process is deciding upon the appropriate mix of assets in a portfolio in a way that balances the future expected return with the risk tolerance of the investor. Many


investors spend a lot of time agonising over single securities at the expense of optimizing their overall mix of asset classes. Research suggests that this focus is misplaced. While instrument selection is important, asset allocation has been shown in multiple studies to explain the majority of the variation in portfolio returns over time.


One of the few “free lunches“ in finance is the value of diversification – spreading your investment across asset classes, securities and currencies. By diversifying broadly across multiple asset classes – such as government bonds, corporate credit, equities, real estate and hedge funds – investors can exploit different sources of return potential. The result is a more efficient portfolio that, over the long term, should generate higher average returns with less risk than any one of its individual components. A well diversified portfolio is less risky, since different asset classes tend to perform differently depending on the market environment.


The events of 2008 serve as a good reminder. Developed stock markets declined 43%, and emerging market equities lost more than half their value in 2008. However, US government bonds rallied more than 12% in 2008, helping cushion the portfolio losses of well diversified investors.


Another key principle that 2008 illustrated is the importance of staying the course. Investors who bought broad-based US equities in 2008 did not realise any losses if they stayed invested until 2012. However, investors who abandoned their strategic asset allocation and sold equities for cash, would not have recovered their losses. Asset allocation is also about managing risk. Risk management helps ensure that investment goals are met and that the strategy is not abandoned when the portfolio endures losses.


It is also our responsibility to remind you that the price and value of investments and income derived from them can go down as well as up. You may not get back the amount you originally invested. Past performance is not a reliable indicator of future results. UBS Wealth Management is a business division of UBS AG which is authorised and regulated by the Financial Services Authority.


Details: Martyn Begbour 07887-450664 martyn.begbour@ubs.com


Fraud down but by no means out


A builder from Bordon, a nurse and a personal trainer both from Southampton, a bookkeeper from Portsmouth, an independent financial adviser from Winchester and a yacht broker from Bournemouth were among cases of reported fraud in Hampshire and Dorset last year, according to BDO’s Fraud Track research.


The accountancy and business advisory firm’s analysis, which examines all reported fraud over £50,000, sees the cost of fraud overall in London and the South East fall from nearly £879 billion in 2011 to just over £625b in 2012.


... the cost of fraud overall in London and the South East has fallen from nearly £879 billion in 2011 to just over £625b in 2012


Across the UK, the value of total reported fraud in 2012 has fallen by a third to £1.37b. However tax fraud, totalling £603 million alone, has doubled in the past two years.


Third party fraud (involving suppliers, customer and similar) was down from nearly


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30% in 2011 to just 4.5% in 2012 which may be as a result of the Bribery Act which came into force in 2011.


Mike Mason, Southampton-based director, barrister and specialist in fraud services at BDO UK, said: “It is clear from the relationships we have with businesses in the region that they are intent on stamping out fraud. However fraudsters are still taking advantage of internal control weaknesses, most of which can be prevented by some simple and robust measures that are all too often overlooked in the race for increased revenues and profits.“


This year’s Fraud Track figures show that VAT fraud alone accounts for 41% of the total UK fraud figure. The current UK VAT gap, the theoretical difference between what the Government expects to collect in sales tax and what it actually collects, is around £10b with fraud accounting for approximately one-third of this figure.


To put this in real terms, if a third of the UK VAT gap is due to fraud, that equates to £3.3b missing from the public purse every year – equivalent to at least one pence off the


effective rate of tax for every UK taxpayer. This amount (£3.3b) would pay for the winter fuel allowance, free TV licences and compensating pensioners on the pensions credit (£1.4b) and still leave enough to build 17 new hospitals (£1.9b).


This year’s Fraud Track figures show that VAT fraud alone accounts for 41% of the total UK fraud figure


Added Mason: “The fact that tax fraud, and VAT fraud in particular, account for such a high proportion of overall fraud, is evidence of HMRC seriously under-resourcing its anti-fraud function.“


Having dominated fraud figures in the past few years the finance and insurance sector appears to have made substantial strides towards combating fraud, reporting its lowest level of fraud in five years at almost £0.5b in 2012. Topping the tables as the industry most susceptible to fraudulent activity is public administration (£615m).


THE BUSINESS MAGAZINE – SOLENT & SOUTH CENTRAL – MARCH 2013


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