our investment philosophy
Our investment philosophy is built on evidence, discipline and a long-term focus on achieving client objectives. We avoid short-term market noise and instead take a structured approach that recognises how markets work, where opportunities for added value can exist, and how risk should be managed. The principles below outline how these beliefs are applied in constructing robust, cost-effective portfolios.
Market efficiency
We believe that financial markets are, by and large, efficient.
This view is supported by SPIVA research, which consistently shows that over almost all time periods, only a very small minority of active equity fund managers outperform their benchmark. We therefore accept that identifying those active managers who can deliver consistent outperformance is extremely difficult. That said, we also recognise that in certain niche areas of the market, particularly those characterised by less intensively researched companies and fewer managers competing for alpha, such as small capitalisation strategies or some factor based funds, there can be greater opportunities for active management to outperform.
While we recognise that markets are, by and large, efficient, we also acknowledge that from time to time themes or trends emerge that may offer opportunities for additional return. In these circumstances, a core–satellite approach may be appropriate. The core of the portfolio is typically comprised of index funds that seek to replicate a specific market index, or passive strategies that use rules-based portfolio construction methodologies. This foundation is designed to deliver broad market exposure in a cost-effective and disciplined manner.
We subscribe to the Fama–French view that share market performance is driven by a number of identifiable factors, and that returns can be decomposed accordingly. While some factors have shown greater persistence over time, they tend to move in cycles. Where we have sufficiently high conviction, a passive ETF designed to capture a specific factor may add value.
Market timing
We do not believe market timing can be relied upon to deliver consistent alpha and, provided there has been no fundamental change to the underlying investment or strategy, periodic drawdowns are generally viewed as an opportunity to increase an allocation rather than reduce it.
Risk
We view risk as multifaceted but, at its broadest level, as the possibility of not having sufficient financial resources to achieve your objectives. Consistent with Markowitz’s Modern Portfolio Theory, we believe investors are best served by holding well-diversified portfolios that seek to optimise the balance between expected return and risk. We also believe that being mindful of costs and taxes is an integral part of maximising portfolio returns over the long term.