Once the strategic asset allocation guidelines, portfolio structure and sustainable framework has been established for a client, we think about how to build the regional and thematic equity exposure. We filter the universe to a peer group of comparable managers with a similar opportunity set and run quantitative screens to determine the best in class. Alongside this, we identify those with the best medium to long-term performance track records. Naturally, absolute returns are important but risk-adjusted returns matter just as much in portfolio construction (volatility, Sharpe ratio, drawdowns). We are left with a short list of funds that merit research in greater detail and to which we apply the next, arguably more important, filter, qualitative analysis.
Qualitative analysis is subjective by nature and an important part of the value-added process. It involves a deeper understanding of all aspects of a fund and the context in which it operates, including,
To understand these specific components for each fund, we focus on a dialogue with the fund>manager. The list above looks rather factual on the surface, but is complemented and enhanced by seeking the nuances and individual stories of each fund, and, furthermore, by following the evolution and implementation of its portfolio over time and throughout the market cycle.
The funds we select can be very different, there are, after all, no inherently good or bad styles.
We favour high conviction managers with a differentiated philosophy and process that is applied in a consistent and reasonably predictable way.
Our aim as investment advisers is to curate a complementary blend of managers which together contribute to an overall portfolio that is appropriately diversified, exposed to a broad range of opportunity sets and capable of outperforming the broad market on a risk-adjusted basis over the long run.
Last, but not least, an ESG overlay is firmly embedded throughout our process aware of the sustainable investment framework set for each client. Historically fund managers have been strong on governance factors, this is just prudent risk management after all, but increasingly we are expecting managers to have a defined process for addressing environmental and social factors. This is an evolving process and as signatories of the UN PRI, it is essential to us that the managers with whom we seek long term partnerships, show proper consideration for all stakeholders in our collective pursuit of sustainable and responsible long term investment goals that we believe complement and enhance the pursuit of purely financial returns.