Investment ideology

Our Investment & Asset Allocation Committee meet regularly in order to determine the funds which make up our portfolios as well as setting our strategic and tactical asset allocations.

Our qualitative fund research is an integral part of the investment process and has been distilled to cover what we consider to be the most important criteria in understanding a fund. The fund selection process (the PRETTI process) has six distinct parts and these permeate the buy, monitor and sell processes.  Together these form our view of the fund and enable us to blend differing funds to create a unique outcome for the portfolios.

Analysing the key aspects of how the fund is managed. This includes aspects such as the current yield of the fund and the frequency of any distributions. Within this section, the aims of the fund are defined, for example the dividend and yield targets. The current and forecast macroeconomic conditions are also analysed in relation to the target performance of the fund.

Although we recognise that past performance is not a reliable guide to future investment returns, it can provide a good indication of the quality of the fund manager and/or team. Performance returns are placed into context; how they have been achieved, the risk taken to obtain them and individual component contribution.

The fund’s volatility is also analysed along with how the performance has responded to different market conditions. We also consider where income is derived, this could be from value, growth or special situations. The greater the mix of income, the greater the diversification of income. The ability for long run returns is assessed, as is the quartile for the fund, to obtain maximum drawdown.

The expenses ratio is by no means a deciding factor, as the objective is to deliver a range of consistently outperforming funds, not necessarily cheap ones.  Therefore, we will always buy a fund if our analysis concludes that it is appropriate and compliments the portfolios.

For our Price Focused Portfolios, the cheapest fund is selected, providing that its tracking error is at a level which is deemed appropriate. A cost adjusted return is computed to analyse how much return is being received for the additional annual management charge.

An investment process is only as strong as the people who implement it.  That is why there is no substitute for meeting the key members of the fund management team to analyse their abilities.

Other parts of a team are also considered as they add value. For example, a new sales team, a new CEO, support staff to the investment manager or external analysts.

We analyse who has the strengths within a team. Is there a key member? Or a piece of technology used to provide the fund with an advantage over others.

The strengths of the team are considered. For example, whether they are proven as being security pickers and/or timers.

We aim to ensure that we understand a fund’s aims and philosophy, so that we can provide clients with the right blend of managers, investment styles, sector exposures and market capitalisations.

The ideology of the fund considers any bias to a particular type of security, for example an income producing equity. The potential performance of the fund taking into consideration any preference of a particular type of security is taken into account. Furthermore, the portfolio turnover is analysed to study any changes.