September 2015
Moderate
Model Portfolio Q3 2015
Registered in England and Wales, number 7239722. Registered office: as above. Avidity Wealth Management Ltd is an appointed representative of CAERUS Financial Limited,
Building 120, Windmill Hill Business Park, Swindon SN5 6NX which is authorised and regulated by the Financial Conduct Authority
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Moderate Model Portfolio – Q3 2015
Key Facts
The Model Portfolio Service for Avidity Wealth Management was
established in October 2010.
Asset allocation is provided by Avidity and sourced from Ibbotson.
Morningstar OBSR populates the asset allocation with funds it
considers appropriate and attractive as a result of its in-depth,
qualitatively-driven research process.
The objective is to deliver outperformance in each of the asset
classes of the Portfolio over the long term.
Investment Objective
The investment objective, as provided by Ibbotson, is as follows:
The Moderate Portfolio will best suit the investor who seeks
relatively stable growth from their investable assets offset by a low
level of income. An investor in the balanced risk range will have a
higher tolerance for risk and/or a longer time horizon than either of
the income or cautious investors. The main objective of an
individual within this range is to achieve steady portfolio growth
while limiting fluctuations to less than those of the overall stock
markets.
Asset Allocation1
Performance from 31/12/2008 – to quarter end
Growth Total Return, Tax UK Net, In GBP
The Custom Benchmark (CB) used to measure performance is a composite that reflects
Ibbotson’s asset allocation output. It is amended over time in line with Ibbotson’s
output (last updated in May 2013). As at the end of the quarter the benchmark is
composed of the following: 4% BBA LIBOR GBP 3 Months/3% IPD UK All Property/8%
FTSE Gilts All Stocks/10% IMA £ Corporate Bond Average/4% FTSE Index-Linked All
Stocks/10% IMA Global Bond Average/25% FTSE All Share/8% FTSE World Europe ex
UK/13% S&P 500/6% MSCI Emerging Markets/5% MSCI AC Far East ex Japan/4% Topix.
Please refer to the information in the footer below regarding performance. Please refer
to the information in the footer below regarding performance.
How to choose the correct portfolio for you – the risks and costs
We have aligned ourselves with two key strategic partners to offer you a portfolio that is designed to provide you with the correct balanced of
risk and return.
Although there are many, some of the more risks that I would like to draw your attention to are:

Risk of capital – the risk that you will have returned back to you less than your original investment

Purchasing power – the risk that your money is devalued by inflation

Market – this risk reflects the tendency for investments to move with the market or entire industrial group or for a particular
security, as a result of factors such as economic, political or social events – also known as systematic risk

Financial – this risk is associated with the finances of the company. Does it have too much debt (the recent declaration of bankruptcy
by Enron is a prime example)

Interest rate – this risk involves how changes in interest rates may affect your investment

Default – this risk is the chance that the company you are invested in will be unable to service the debt

Foreign currency – this risk is that a change in the relationship between the values of the UK Pound and the value of the currency of
the country in which your investment is held will affect your holding. This is an important risk for international investing
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The costs
There are known costs for portfolio management:

Cost of investing – these can be broken down as such:
Cost of product
Cost of funds
Cost of advice

Tax – tax drains on portfolio performance over time

Cost of not reviewing – perhaps one of the greatest costs on fund management and this refers to the cost of purchasing an
investment and not reviewing it. As investments go in and out of favour, if a portfolio is not reviewed then it is possible for poor
investments to be held for too long within the portfolio offsetting gains or causing a loss.
How our portfolio reduces the cost and risk to your money – common benefits
We have designed our portfolio to limit the risk associated with making investments and to provide you with multiple benefits. The “Moderate
range” portfolio has the following risk mitigating benefits:

Maximising the chance of your fund maintaining its purchasing power – we have invested in a selection of asset classes that when
combined, provide your portfolio with a good chance of maintaining its purchasing power. Although we are comfortable that this
blend is appropriate for you, it is important that you recognise there is no guarantee that the growth of your fund will match inflation
and as you are in investments that contain an element of risk to capital it is possible that you could receive back less than you
originally invested.

Reduction of risk through diversification across asset allocation – the portfolio is diversified to the asset allocation detailed in the
pie chart above. This reduces the risk by investing in a range of assets or sectors. A commonly accepted academic theory by Brinson
et al states that asset allocation decisions are the primary determinant of portfolio returns, above market timing and stock selection.
With this in mind, we have engaged the services of Morningstar who provide us with the correct asset split for moderate investor risk
tolerance.

Reduction of risk through diversification across company – the portfolio contains a selection of “collective” investments. Effectively
this means that each individual investment that we recommend – i.e. the Avidity Wealth Management Moderate Portfolio contains a
selection of investments. By blending funds in this way, we diversify across funds as well as across individual investment spreading
the risk across many investments.

Sterling denomination – the portfolio is contained within Sterling denominated investments which reduce the cross currency risk.

Reducing the tax drain – given your current and expected future situation, we will structure your investments in a tax efficient form.
We can review your tax efficiency on an annual basis as part of our review service and will take advantage where possible of the
various tax efficient routes to invest.

Reducing the cost of non-review – as part of our service we can offer a review in which we can review your attitude to risk, the asset
allocation that your investments are within and the individual funds that you are invested in. We recommend that you partake fully
in this review.

Minimise the cost of investing – in our analysis we have analysed the cost of investments and on balance, we have opted to
implement a Wrap Platform which provides you with initial and annual discounts on funds whilst allowing us to place any
investments that may be appropriate for you going forward. The costs of these funds on and off platform are listed below.
How our portfolio reduces the cost and risk to your money – specific benefits and risk
As with most things in life, investing is about providing balance between conflicting issues. The portfolios have been designed to be consistent
across asset allocation and mandate and we are confident that each of the portfolios are appropriate for a moderate risk profile.
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Avidity Wealth Management Moderate Portfolio
To provide our clients with a multitude of benefits, we have blended together a portfolio that contains holdings that are designed to be actively
managed and reviewed quarterly by OBSR. We have complemented this with passive satellite funds to provide your portfolio with exposure to
other markets. The satellite funds are provided by Vanguard.
Avidity Wealth Management Moderate Portfolio
% Asset
Allocation
Asset class
Suggested
% Fund
Weight
7
Cash
7
Cash
Property
5
Threadneedle UK Property Trust
3
M&G Property Portfolio
2
Fixed Interest
UK Gilts
5
Royal London UK Government Bond
Vanguard UK Government Bond
3
2
UK Corporate
8
UK Inflation-linked
4
Global Investment Grad ex UK
10
Fidelity Strategic Bond
M&G Strategic Corporate Bond
Vanguard Investment Grade Bond
L&G All Stocks Index-Linked Gilt Indx
Vanguard UK Infl-Linked Gilt Index
Invesco Perpetual Global Bond
Vanguard Global Bond
2.4
2.4
3.2
1.6
2.4
6.4
3.6
Check
7
5
27
UK Equity
27
Europe Equity
North America Equity
Emerging Markets Equity
Asia Dev Ex Japan
Japan Equity
8
10
6
4
6
Vanguard FTSE UK All Share
Old Mutual Alpha UK
CF Woodford UK Equity Income
AXA Fram, UK Select Opportunities
M&G Recovery
Investec UK Special Situations
10.8
4.2
4.2
2.4
2.1
3.3
27
Henderson European Select Opps
Jupiter European Special Situations
Vanguard Developed Europe ex UK
3.0
2.4
2.6
8
HSBC American Index
JPM US Equity
Vanguard US Equity Income
2.6
3.0
4.4
10
Lazard Emerging Markets
M&G Global Emerging Markets
Vanguard Emerging Market Stock
3.2
1.2
1.6
6
Fidelity South East Asia
3.0
Vanguard Pacific Ex Japan
1.0
4
Schroder Tokyo
Vanguard Japan Stock
3.0
3.0
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Advantages

Blend of advantages – this portfolio offers a blend of advantages offered by the Vanguard and OBSR portfolios

Liquidity – the funds can be traded easily which means you can have access to your capital at anytime

Exposure – by combining these portfolios, you are able to gain maximum exposure to the markets, through active and passive
management

Cost – by combining the two portfolios, you benefit from a cheaper annual charge which is lowered due to the use of the Vanguard
funds, yet you still get the exposure to actively managed funds provided by OBSR
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Disadvantages

Potential tax – the income and gains from these funds are subject to taxation. To minimise the effects of these we will recommend
that you use tax efficient wrappers and that we managed out any gain through capital gains tax planning

Potential variation from index – as the fixed interest funds employ a strategy of samplification as opposed to full replication, there
may be the potential for variation from the index (Vanguard funds)

Potential returns below the index – as these funds are actively managed, it is possible for the manager to underperform the index
and his peers (OBSR funds)

FCSC Protection – only the UK based funds are subject to FSCS protection. The Irish based funds however, benefit from the
appointment of an independent custodian which in effect ring fences the assets from that of the provider to provide a robust level of
protection (Vanguard funds)
The cost of this portfolio
Asset Manager
Asset
Vanguard
Vanguard
Vanguard
Vanguard
Vanguard
Vanguard
Vanguard
Vanguard
Vanguard
Vanguard
Cash
AXA Framlington
CF Woodford
Fidelity
Fidelity
Henderson
HSBC
Invesco Perpetual
Investec
JPM
Jupiter
Lazard
L&G
M&G
M&G
M&G
M&G
Old Mutual
Royal London
Schroder
Threadneedle
Emerging Markets Stock
FTSE UK All Share
Global Bond
Japan Stock
Pacific Ex Japan
UK Inflation Linked Gilt
UK Investment Grade Bond
US Equity Index
UK Government Bond Idx
FTSE Dev Eur ex UK
UK Select Opportunities
UK Equity Income
South East Asia
Strategic Bond
European Select Opportunities
American Index
Global Bond
UK Special Situation
US Equity Income
European Special Situations
Emerging Markets
All Stocks Index-Lined Gilt Index
Feeder of Property Portfolio
Global Emerging Markets
Recovery
Strategic Corporate Bond
Alpha UK Equity
UK Government Bond
Tokyo
UK Property Trust
Weighting %
1.60
10.80
3.60
3.00
1.00
2.40
3.20
4.40
2.00
2.60
7.00
2.40
4.20
3.00
2.40
3.00
2.60
6.40
3.30
3.00
2.40
3.20
1.60
2.00
1.20
2.10
2.40
4.20
3.00
3.00
3.00
Fund
Management
Charge
Wrapper
Charges
0.27
0.08
0.15
0.23
0.23
0.15
0.15
0.10
0.15
0.12
0.00
0.83
0.65
1.01
0.67
0.85
0.17
0.62
0.74
0.93
1.03
1.07
0.15
1.07
1.01
0.90
0.66
0.785
0.44
0.85
0.81
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.00
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
0.40
Who should purchase this portfolio?
This portfolio should be considered by an investor that is:

Somebody that wants a blend of benefits of active and passive funds

Happy that only the UK fund based portion (of Vanguard funds) and the entire OBSR fund selection is covered by the FSCS

Happy that the combination of asset classes provides enough protection from downward movements in one specific market

Happy to pay their stamp duty and pre-set diluted level on an individual basis, rather than it being taken from the fund (Vanguard
funds only)
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How Avidity Wealth Management recommend this portfolio is implemented
We recommend that this portfolio is implemented in the following way:

Through the Avidity Wealth Management Wrap to enable us to enable us to access the funds in an administrative efficient way

Re-balanced at a frequency agreed with your adviser

Is placed in a tax efficient wrapper

The OBSR fund selection is reviewed on a regular basis to ensure the continued stability of the fund manager