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Wealth Managers Not Rewarded for Taking Extra Risks in 2014, ARC Confirms

ARC has this week confirmed that performance figures across risk profiles showed no significant differences over the course of 2014.

The enterprise’s private client indices, which track the performance of 54 wealth management firms, indicate that the year ended on a positive note for investors across the board.

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A Good Year for Investors

Wealth management authority ARC has recently released some good news for investors: despite the volatility of the past year, 2014 ended on a positive note for those entrusting their money to investment management firms.

The body’s private client indices measures the performance of portfolios managed by 54 different firms. These portfolios are split down into four risk categories, with the results of each being tracked across the course of the year.

The fourth quarter proved fruitful for investors across the board, with each band displaying an improved performance compared to earlier in the year. This means that although PCI figures for 2014 as a whole were lower than those for 2013, the majority of portfolios had experienced a notable recovery by the backend of the year, putting them on track for a lucrative start to 2015.

Individual Risk Category Performances

The portfolios tracked by ARC were split down into four separate categories: Sterling Cautious, Sterling Balanced Asset, Sterling Steady Growth and Sterling Equity Risk. Of the four, the former showed the slowest growth in Q4, increasing by 1.5 per cent. The performance of the Sterling Balanced Asset category was similar, with a 1.9 per cent increase recorded. However, the higher risk portfolios showed more marked improvements, of 2.3 per cent and 2.1 per cent respectively.

Although this suggests there was some notable variation in the latter quarter, the discrepancy in the performance of the categories over the course of the year was less manifest, and showed little significant difference. This is clearly evidenced by the 0.1 per cent difference in the performance of Sterling Cautious and Sterling Equity Risk, at 4 per cent and 4.1 per cent respectively.

Looking to the Future

Graham Harrison, ARC’s managing director, explained: “There was little reward for taking equity risk as opposed to investing in other assets. It has been hard for discretionary managers to add value over and above an index tracking style approach over the last five to six years. I think a lot of that has been driven by the financial repression that the governments and central banks have introduced.”

Mr Harrison elaborated: “Going into 2015, I think we’ll see a change in the primary driver of markets – from liquidity to economic fundamentals. It isn’t going to be a question of how much money is swimming around in the financial markets. It will be a question of which companies offer the best prospects for growing profits and dividends. In that environment, discretionary managers can add more value.”

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