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The Multi-Asset process

Investment philosophy

The investment process is designed to achieve two main objectives:

  1. 1

    Target the outcome expected by investors in terms of the level of risk, as measured by volatility, of each model portfolio. This can enable investors to match the appropriate portfolio to their desired risk profile

  2. 2

    Maximise the return for each model portfolio while still targeting investors’ level of risk

Investment process

These two objectives are pursued through a quantitative and qualitative approach. The fund managers use a scientific approach to target the risk outcome expected but consider the maximisation of returns to require an additional element of experience, knowledge and qualitative interpretation.

There are four key stages to the investment process:

  1. 1

    Strategic asset allocation

    The fund managers collate and analyse historical returns and volatilities of a range of asset classes, as well as their correlations with each other, to determine the strategic asset allocation (SAA) that should meet the volatility targets for each model portfolio over the long-term. The SAA is essentially the default asset allocation should the fund managers have no views on the relative attractiveness of different asset classes.

  2. 2

    Tactical asset allocation

    The primary aim of the tactical asset allocation (TAA) is to increase exposure to an asset class when it looks cheap and reduce exposure when it appears expensive; the fund managers’ focus is on valuations rather than market timing. They believe it is important to supplement the long-term benefits of the SAA with the flexibility to take advantage of valuation opportunities in the shorter term.

  3. 3

    Fund selection

    The model portfolios hold a range of funds and fund managers, including active, passive and alternative investment strategies. The fund managers believe the key elements that should underpin fund selection are: investment process, fund manager experience, fund manager knowledge and fund manager incentive (i.e. remuneration).

  4. 4

    Portfolio construction

    The fund managers want to ensure the underlying funds within the model portfolios are exposed to the segment of the market they feel has the most potential for outperformance while reducing unintended risk. Therefore, they consider how each holding interacts with each other in terms of correlation, risk and return to ensure the benefits identified at the holding and sector levels are not diversified away when grouped together at the fund level.

    Risk management is central to each of these stages, and the model portfolios are designed to provide diversification across asset classes, geographical regions and investment styles to enhance the risk-adjusted returns.

The Multi-Asset team
The Multi-Asset team
John Husselbee (right) & Paul Kim (left)

John Husselbee and Paul Kim are two of the most high-profile multi-asset managers. John launched the portfolio management service at Rothschild Asset Management, was Director of Multi-Manager at Henderson Global Investors, where he was responsible for portfolio construction and fund selection of a range of portfolios totalling over £650 million, and founded North Investment Partners. Paul was instrumental in setting up Investment Manager Selection Ltd (IMS), was Head of Fund Selection and Multi-Manager at Liverpool Victoria Asset Management (LVAM) and has also managed portfolios at Capel Cure Myers, Sun Life Portfolio Counselling Services (AXA Sun Life), Christie Group Investment Management and Spencer Thornton Investment Management Services.

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• Past performance is not a guide to future performance. • Do remember that the value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. • Any performance shown represents model portfolios which are periodically restructured and/or rebalanced. • Actual returns may vary from the model returns. • There is no certainty the investment objectives of the portfolio will actually be achieved and no warranty or representation is given to this effect. • The portfolio therefore should be considered as a medium to long-term investment. 

• The information and opinions provided should not be construed as advice for investment in any product or security mentioned.  • Always research your own investments and consult with a regulated investment adviser before investing.
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