Thoughts on our Investment Process
Thoughts on our investment process is written by our Chief Investment Officer, Peter Lowman
At the core of our investment process is the understanding that clients are not necessarily averse to taking risk but that they are particularly sensitive to capital losses. This delicate, yet important, difference is a key aspect of our investment approach.
We believe that there is no one investment management company that has exceptional performances over all of the asset classes, all of the time, or, that they have the best people or unlimited ideas. Consequently, we enhance our stock-picking expertise by investing in funds run by proven specialists from a mixture of investment houses. This strategy means that you have access to the best managers within the industry.
Certainly over the years, this investment approach has delivered a much better risk-adjusted return for our clients.
In summary, we have adhered to the following principles:
- Focus on achieving returns that are better than cash and increasing the real wealth of our clients
- That asset allocation is the primary determinant of long-term investment returns
- Understand and manage investment risk, particularly the risk of capital losses
- Evaluate and, where appropriate, adopt and develop new investment skills
- Back our convictions through strategic and tactical asset allocations
We believe that long-term investment returns are primarily determined by a rigid, and well thought out, asset allocation, giving a suitable proportion of equities, bonds, property, commodities and cash. Furthermore, it is important to have a reasonably well diversified portfolio, to mitigate the risk potential, also by having the correct strategic and tactical asset allocation it reduces exposure to price volatility.
To assist us in making the right asset allocations, we have our own internal investment committee that meets on a monthly basis, and from this we have constructed six risk -adjusted investment solutions [model portfolios]: Adventurous, Growth, Growth & Income, Balanced, Extra Income and Defensive.
In each case, an asset allocation is determined as follows:
We review the current investment climate including forecasts for certain economic variables for the short and medium term e.g. GDP, inflation and interest rates
We make a judgment on short -term risks and potential market movements
We review and analyze the Investment Quorum centurion List, to select and determine the true underlying asset allocation for each model portfolio, using statistical evidence from FE Analytics, such as annualized ratio tables, historical performance track records, volatility measures, risk scores and efficient frontier data, we then determine if the solution has drifted outside its prescribed risk parameters. If so, we can make the necessary adjustments.
Given the detailed work that our investment committee apply on a monthly basis, it will come as no surprise that any fund chosen for any of our solutions is scrupulously dissected, not only from the fund’s investment objective, performance track record and fund managers style and bias, but also from an actual portfolio standpoint , indeed, we like to drill down into the actual portfolio, so as to understand why the manager has taking his investment decisions.
Why do we take this route? Well because we believe that it is important for us to fully understand the underlying investment portfolios for each active fund that is represented in our solutions; as we try to dovetail our own “in house” investment views, to that of those funds, obviously in the case of a passive fund, we are just taking a view on a market of sector to neutralise the market movement.
The changing demographics of the world
To understand what we mean by looking at the construction of a fund’s portfolio, and dovetailing it against our own views, could easily be explained in the following example.
Over the past decade we have experienced a huge change within the world’s demographics, “east versus west” “wealth versus debt”. So just looking at the following facts gives you some idea of the changing world that we now live in;-
70% of global economic growth comes from emerging markets
By 2050, the world’s population is expected to reach 9 .1 billion
By 2020, consumer spending in Asia is forecast to rise to US30 trillion, this equates to 60% of global middle class spending.
In developing nations 90% of water is used for agriculture, yet 33% of food produced is wasted
One billion tourists travelled the world in 2012 accounting for 9% of GDP
Companies are finding different ways to attract consumers
In the 2040’s Japans population will be the oldest on earth
According to the IMF combined GDP of emerging markets could overtake that of developed economies this year
Therefore, the importance of having exposure to good quality global businesses, with strong balance sheets, rising dividends, excellent management, strong franchise, and a growing consumer base, makes that business worth a huge amount of money and one worth owning over a long time-frame.
Peter Lowman Chief Investment Officer
Peter Lowman has been in investment management for over forty years and prior to becoming Chief Investment Officer for Investment Quorum, he worked within a larger asset managers, primarily as an Investment Director with Cazenove’s. He is responsible for the overall investment strategy for Investment Quorum clients and sits on the Investment Quorum Committee.
This article does not constitute specific advice and investors should bear in mind capital invested is not guaranteed.
Investment Quorum is authorised and regulated by the Financial Conduct Authority .
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