We all expect different things from investment portfolios. Some investors require income over the medium term without putting capital at risk, while others have more patience but require significant real returns in exchange for their tolerance. There are also those who are unsure of what they need or what to expect, as long as the value of their portfolio doesn’t get eroded by inflation. As professional fund managers, our job is to provide investors with solutions that meet their requirements.
Broadly speaking, if you have a longer-term horizon, you may be better suited to higher equity allocations, typically up to 75%, while those with a shorter timeframe will typically have an equity allocation of 30% to 40%, with defensive asset classes like bonds and cash making up most of the portfolio. This is a broadly acknowledged cookie-cutter approach to multi-asset investing.
So, all good and well, we have the building blocks required to do so, but how do we approach the conundrum of trying to:
- Deliver an above-average return, in line with the specified requirements
- Ensure that the investment portfolio’s purchasing power is not eroded
- Safeguard their investments?
Without going into the delicate intricacies of the multi-asset models we utilise, we can break this down into three wide-ranging guiding principles that we follow:
Stick to the process
Over the long term, asset allocation drives most returns in multi-asset portfolios, while security selection will add short- to medium-term alpha. Our process is a fundamental one, applied to both top-down allocation and bottom-up selection. We don’t try to time the market; a fundamental valuation approach cannot be used to time markets. What we do is ensure that over time, we realise greater value than the price we paid for an asset.
We remain disciplined through periods of poor performance, as there will be periods where capital markets do not deliver returns as anticipated. Markets have and always will be volatile, we can’t control what happens there, but we understand the historical return trend of asset classes, which helps with our allocations as well as to manage risk.
Active management
We are active managers, so we employ strategies to identify and capitalise on market opportunities. Over the short run, markets are driven by factors that change quickly such as headlines, trading activity and flows as well as sentiments. Markets can be very volatile over the short run and returns can be quite unpredictable.
These are the ebbs and flows of capital market returns. Capital markets don’t move in a straight line, and hence we remain alive to the opportunities that we can distill through our process.
We also remain wary of chasing yesterday’s winners and avoiding today’s dogs. Buying high and selling low is not the recipe for success.
Risk management
No-one will consistently get market forecasts correct. We aim to be correct 60% of the time. Knowing that we can get it wrong and admitting as much when we do get it wrong, helps avoid blow-ups. And every year, as we go through another 12 months of varying degrees of market performance, we learn new lessons and continually improve our process.
Through continuous learning within our diverse team, we aim to deliver consistent and above-average returns over the long term, providing our investors with the confidence and peace of mind they seek.
We also note that while portfolio diversification is important, we want to do it without losing the incremental benefits of having high-conviction calls. Executed properly, this will maintain portfolio returns without taking on undue risk.
In conclusion, our approach to managing investment portfolios is anchored in a disciplined process, active management, and rigorous risk management. By adhering to these guiding principles, we strive to meet the diverse needs of our clients, ensuring that their investment objectives are achieved while safeguarding their capital. Through continuous learning within our diverse team, we aim to deliver consistent and above-average returns over the long term, providing our investors with the confidence and peace of mind they seek.
