Portfolio management

We look at the big picture when building our portfolios. We thoroughly research and understand the fundamental qualities of every investment, focusing on the small details, to make sure our portfolios are as effective as possible.

Portfolio management is a mixture of art and science. Blending different investments, in different asset classes, to a particular level of risk and governed by specific processes to ensure outcomes can be clearly measured and reviewed.

The correct asset classes need to be used, to give a blend that provides an acceptable exposure to risk.  Then the underlying funds for those asset classes also need to be blended, to ensure that risk is taken in the correct areas and we eliminate, as much as possible, any unintended consequences.

This is achieved through detailed research and capturing the important benefits of diversification.


What is diversification and why would you what to diversify in the first place?

Investing is not about gambling or speculation, it is about taking reasonable financial risks to achieve specific goals.  These financial risks may be reduced if you choose to invest in assets that have a low correlation. To put it another way, they behave in different ways at different times.

The higher the level of diversification, the greater the reduction in risk.

Take a portfolio holding shares in an ice-cream company.  If you add another ice-cream company to that portfolio it reduces the reliance on the performance of that one company.  However, the portfolio is still dependant on one factor: the demand for ice-cream.  If this demand drops, the portfolio will suffer.

By adding a company from another sector, for example a sun lotion company, you have a more diverse portfolio and reduce the risk of being in one market sector.  However, you are exposed to the risk of a rainy summer.  To alleviate this problem, you could add an umbrella manufacturer to the portfolio, an asset that will appreciate during a rainy summer and offset the poor performance of the ice-cream company.

Asset Allocation

The best way to diversify your investments is to spread the risk and invest in several different asset classes.  The principal choice is between shares, bonds, cash and property.  The aim is to select asset classes that behave in different ways; the theory being when one asset class is underperforming, the other is outperforming.

The level of diversification, and the mix of the assets, is critical to building a portfolio that is managed to a particular level of risk, or within a range of portfolios.