We have been constructing portfolios since 1987 which have been tested by both positive and negative market conditions due to economic cycles or major global events. In addition, we have witnessed the fallout for clients who have been advised to invest in portfolios based on inadequate models or ones that have not adapted to the changing investment conditions. The following principles, we believe to be timeless and self-evident, have come from these experiences and our own market research.
Principle 1 – Asset allocation is the key driver of performance and risk
Principle 2 – Experience, ability and resources matter
It goes without saying that experience and knowledge are essential to making good investment decisions. However, it is most critical that the decision makers are sufficiently resourced with people who can provide mission critical information within the window of opportunity to avoid loss or capture gains. Clearly this will take deep financial resources and economies of scale to deliver this level of governance and oversight. This section describes the teams we employ through the selected investment funds in our cautious portfolio.
Principle 3 – Protect against losses before seeking returns
Although that, historically, it has been true that all you need to recover losses is time, this is not always possible especially for those needing income. Therefore we analyse risk with a multi-factored approach and judge investment funds returns against these risks. For details of the overall risk level and fund by fund breakdown click here.
Principle 4 – Consistency of performance over highest performance
At any moment investment funds will appear at the top of the charts and tempt new investors only to disappear in the following month/quarter/year. We place a higher value on those funds which have performed with a greater level of consistency.
Principle 5 – It is difficult to consistently beat the index
While there are fund managers who have outperformed the index over a reasonable stretch of time, there are none who have managed to go without periods of under performance. The problem is, as one study showed, when a fund grows by less than the index over a period of months, many investors sell out and therefore do not get to enjoy growth over and above the index. It’s understandable why investors want to “jump ship” because many funds that start to under perform continue to do so and it’s impossible to tell when it is a blip or a sea change. For these reasons, in most client situations, we do not believe it is worth paying for expensive funds that aim to beat the benchmark.
Principle 6 – Cost is the only certainty
Although there is no way to guarantee investment returns we can control cost to a large extent and our portfolios range between a cost of 0.26% and 0.35% compared to the average actively managed multi-asset fund of around 1.04%.