The Active Switching Programme

You invest monies into one or more of the tax wrappers on Wrap (SIPP/OEIC/Unit Trust/ISA).  Then we look to take advantage of the volatility which we are seeing in the market daily.

The idea is actually fairly simple, it is just that what we are doing is not possible without access to fast switching (you may be aware from other investments that fund switching generally takes many days to go through, this is no good for what we are doing) and access to investment funds without any initial charge (the traditional bid/offer spread).

We choose from about 40 different higher risk funds, investing into 20 of these at any one given time.  We review these funds on a regular basis.

The investment principle behind the High Risk funds is that we look to make between 5% - 10% gain in a fund, then we capitalise that gain.  Once the fund is sold the monies are held in cash to await the next “in” trigger point.

The “in” trigger points for buying these particular funds will vary depending on how we see the market at present, but here are examples of what we may consider to be “in” trigger points:

1)   Fallen by 3% within a week.  That could be anything from one day to five

2)   Fallen by 5% in a month

3)   Fallen for two consecutive days and the market that the fund operates in is not up       

      significantly during the third day

Once a decision to invest has been made, we buy units in that fund; this is assuming you have enough money left to do so.  There may be occasions when all of your high risk monies are committed, therefore leaving no monies to invest further, as we try to limit ourselves to no more than 20 high risk funds within your investment.

As previously discussed, we will then get out of funds when they have gained 5% - 10%.  However, we may stay in a fund in some cases if we have very strong feelings that the market the fund is operating in is likely to go up further in the short term.  This decision will be communicated to you where appropriate, as staying in the fund is, in our opinion, almost the same as re-investing, so we believe it is appropriate to tell you that we are recommending to stay in and why.

We are not Discretionary Fund Managers.  We do not purchase or sell investment funds without a response from you.  We believe your money is your money and we avidly promote our clients to take a pro-active stance in their investments. Therefore we never act without your prior consent.  

This investment philosophy has worked particularly well during the past year, when markets have been extremely volatile.  We only started the programme in October 2008, as a result of the big market fall following the collapse of Lehman Bros, and we have produced some very good returns since then in what has been a volatile market.  This approach has since that time outperformed the FTSE significantly.  Although it must be said that this is a relatively short period of time in investment terms and the real test will be when we have experienced all market conditions.

This would not be possible to do without the Internet and our Wrap Platform.  The Wrap Platform allows us to switch funds on a daily basis (if need be) without charge.  Because of the special terms for funds on the wrap platform, many (although not all) funds do not charge if we switch in and out of them.  We will not use funds which do. 

Finally, Ring Associates Ltd does not charge for any of the switching which we carry out for you.  The only charges are the Annual Charges which we make and which the individual fund management companies make.

As we discussed, there is cost involved.  This type of investment is expensive and there is, unfortunately, no scope for movement on the annual costs.  There is an initial charge from Ring Associates Ltd of normally 2% of the investment, and we will charge an annual fee of 1% for managing the investments.  In addition, the various fund managers we use charge an Annual Management Charge, although this is typically lower on the Wrap than direct from the fund manager, with normal discounts ranging from 0.35% to 0.5%.  This does mean that the overall charge that would be taken from your fund would be around 2% to 2.5% in total, which compares to around 1.75% PLUS an initial charge (Bid/Offer Spread) of typically 3- 5% on the open market.

You should also remember that any time your funds are held in cash, they will not be subject to any charge from a fund manager.

Risks

There are only really two potential risks to this investment:

The first is that markets will fall and continue to fall.  When this happens, we may have bought into them, as they will have hit their ‘trigger points’.  If the funds continue to fall, there is no ‘long-stop’ position in place, however.  This is because we feel that it is counter-productive.  We have a very distinct structure around which we work for this investment.  Without this structure, it would be reliant upon ‘gut feeling’, which is not a particularly scientific method of investing.  It is also likely to produce a ‘greed reaction’ whereby funds are held way beyond their 5%-10% gain simply because one of us feels that it will gain some more.  The problem there is not knowing when to stop.  Essentially, if a particular fund falls a long way (around 25%); we will be in touch with you to discuss what to do with it.  What we actually do would depend upon our discussions.  However, you should bear in mind that it is in the nature of this kind of investment that once we have bought a particular fund; it may continue to fall for some time before it turns around.

The second problem is less likely to occur and is also much less likely to be an issue.  If markets rose steadily way beyond the 5%-10% point, we would have sold funds in these markets once they had gained 5%-10% and would be unlikely to go back in, due to the parameters we work around.  This demonstrates the importance of having other asset classes in your investments.  Of course it is also true that markets rarely rise steadily; there is always an element of profit taking as they reach some landmark or other.  This reduces the price of the shares temporarily, meaning that there would be likelihood that a trigger point would be reached.

Overall, we believe very strongly in this investment philosophy.  Not only will we be actively managing your funds, but you will see that we are, as you will receive very regular emails from us detailing the investments which we think we should buy and sell for you.  It has produced results in very uncertain markets and we believe that it will continue to do so.