Investment
Philosophy

An investment philosophy is a set of guiding principles that inform and shape a firm’s investment decision-making process.  Some companies will issue their philosophy in a document called an Investment Policy Statement.  Our version is known as our Investment Code.

We believe in low-cost, simple investment plans in a marketplace of near-limitless complexity.  The strategies and solutions we utilise are selected specifically to address the objectives of each client.

Because we recognise that high costs are the greatest enemy of investment returns, we favour low cost, liquid and flexible investments. 

Where possible, we employ exchange traded funds (ETFs), but we also access mutual funds.

A full range of investment solutions makes up our current investment universe.  The ETFs we employ are simple, physically-backed and liquid securities, comprised of a range of asset classes.

As an entirely independent company, we can select from any assets, holdings and securities depending on what is most appropriate for each client — we're not tied to anyone. 

All successful investing is goal focused and planning orientated.  We believe you should have a basic investment plan and, unless the world changes, you should follow it.

We believe strongly in modern portfolio theory; that the greatest driver of your investment return is in your asset allocation, not your security selection.

Putting this into practice means that we save you money and make you money.

Very!  Because in times of market upheaval and through the dark of uncertainty, your investment philosophy enables you to control your emotions, shut out the noise and focus on the things that really matter over the long term.

We adhere to a distinctive investment philosophy that is known as Evidence Based Investing.

We believe that: 

• Capitalism creates wealth
• Markets are efficient
• Risk and return are linked
• Portfolio structure dominates
• Diversify broadly
• Costs of all kinds really matter

Deciding on which exact investments to use is a process, which begins with managing risk and return.

To do this we have implemented a strategic asset allocation using the major liquid asset classes of equities, bonds and cash, creating a risk adjusted range of portfolios, with options to match the risk requirements of our clients.

The higher the tolerance for investment risk which a client displays, the higher the allocation to global equities they receive.  Conversely, the lower the tolerance, the higher allocation to fixed interest securities.

This strategic asset allocation determines the overall volatility of the portfolio.

Numerous studies over the last 30 years (Brinson, Hood & Beebower, 1986; Brinson, Singer & Beebower, 1991; Ibbotson & Kaplan, 2000) show that the main determinant (over 90%) of portfolio volatility results from strategic asset allocation.

Based on the overwhelming evidence that active fund managers do not outperform markets consistently, we have a passive approach whilst keeping costs as low as possible.

Passive means we use instruments which track indices, looking to participate in the market return.

Broadly speaking there are two distinct style of investing; active and passive.

Active management involves researching and selecting individual securities in a fund, according to a portfolio manager’s particular investment approach, with the aim of outperforming that benchmark.

The passive approach to investing (most typically using exchange-traded funds) seeks to construct a portfolio that replicates a benchmark index, such as the FTSE100 or the S&P 500 Index.

This means either buying every stock on the reference index or replicating the index – and in the same proportion.

Traditional asset managers and wealth managers believe that active has the potential to do well, and so choose this approach.

We believe (and our belief is backed up by scientific evidence) that the majority of the time, active fund management under performs net of fees and charges.  We believe investors are better served by investing in a passive approach therefore.

Evidence based or passive investing aims to capture the returns of the market through a low-cost, diversified and long-term investment strategy.

We have adopted an evidence-based approach to investing that seeks to provide the greatest likelihood of a successful outcome for our clients.

The evidence provides very clear guidance as to the investment activities that organisations such as our own should be focusing on.

Passive, or index fund investing refers to an investment methodology that attempts to track a specific market index as closely as possible.  The theory behind indexing as an investment strategy focuses on the zero-sum game: before costs, for every investment that outperforms the index of a chosen market, there has to be another one that underperforms it.  But once costs are taken into account, it means that the low-cost index funds will have a greater probability of outperforming higher-cost actively managed funds.

Our three key beliefs which drive investment decisions for our clients are: 

1) markets work efficiently;

2) risk and reward go hand-in-hand; and

3) diversification is a vital tool, described by Warren Buffet as ‘the only free lunch in investing’. 

Therefore, when constructing portfolios, we focus on structure, cost management and risk control.

The combination of this evidence-based investment approach coupled with disciplined international financial planning, and the management of behavioural bias, means the best financial solutions are delivered for our clients.

As professionals, we believe in following the latest proven academic research and putting it into practice.  This in a sense is what evidence based investing is all about - and is the opposite to what active managers do; which is speculate on stock picking and timing the market.

Investing with a passive approach at its simplest means that you will never underperform the market.

We also think it’s important to manage expectations and highlight that the opposite side to not underperforming the market is that portfolios will not outperform the market.

A passive approach to investing also means that the fees you pay are kept to a minimum.

This is because active funds need to pay for expensive fund managers, teams of analysts and research from third parties.  Passive funds do not have these expenses and so cost a lot less than active funds.  Because they cost you less, more of your money is invested for growth.

Passive funds cost between 0.07% to 0.50%.  Active funds usually cost between 1% to 3%.

These cost savings mean that your investments will grow unaffected by high costs normally associated by active investing.

A consistent approach to investing is important as it allows for a repeatable investment framework to be put in place for selecting investments.

This is important as it lowers the chances of emotional decisions or behavioural bias negatively affecting the decision-making process; which could likely lead to poor investment outcomes.

Where a repeatable investment process is not in place, an investor cannot be sure that every selected investment has been made in a sophisticated way.  This would likely mean that analytical approaches like quantitative and qualitative techniques are not being employed.

Our philosophy has been developed to ensure that you actually have the lowest possible costs - and this is ingrained as one of our key pillars: costs of all kinds really matter.

We don’t know! 

But we do know that talking heads on CNBC and elsewhere have successfully got it wrong time and time again!   

So, we ignore this market noise and focus on identifying simple, cost-effective solutions that, within a defined asset allocation, offer the best chance for investors to meet their long-term investment goals.

We think this is pretty easy - and we don’t want to make it any harder, or more expensive for our clients by making speculative decisions based on baseless predictions that will probably turn out to be wrong!