The Becketts Investment Philosophy
It is now generally accepted that strategic asset allocation is by far the most important determinant of portfolio performance. This is the process of allocating your capital across a range of different asset classes such as cash, fixed interest, property and equities. This is not simply a question of diversification, although spreading risk amongst different asset classes is clearly important. The optimum split between these asset classes depends on your personal objectives for the portfolio and on the risk of failure that you are prepared to take over your chosen timescale.
The effect of diversification can be seen in the following graph:
Being independent and having the time to review market conditions, we will adapt these allocation models to suit the specific economic conditions.
A good example of this was in June 2007, when although a fully stochastic modelling approach suggested keeping property within a portfolio, we decided to move away from this asset class around that time, switching our clients into cash which proved to be of huge benefit to our clients in terms of capital preservation. More recently we have added a hedge to our US Equity exposure so that we can retain the exposure to US Equities, whilst at the same time not being exposed to currency fluctuations, which feel somewhat out of kilter with historic figures and what we feel are equilibrium levels.
This common sense and flexible approach is one that Becketts prides itself on and one that through our quarterly investment committee meetings proves to add benefit to all of our clients.
The next stage of creating a portfolio is to select the funds that actually sit inside the portfolio. We review all asset classes, but in general UK based and regulated collective investments form the basis of our portfolios.
Fund Choice Philosophy
In order to select the funds for the portfolios we use a number of criteria, with the most significant being:
- We map out the previous economic climates and trends that have been seen over the past 50 years, reviewing recession and recovery points.
- Next we will assess which funds have performed well over those periods and have performed consistently since then.
- We will then look to filter down the best performing funds to ones that have performed well, but which are also within a 10% average of its sector’s volatility level. The aim is that given the level of diversification available in sectors, we want a fund that is acting in accordance with the sector whilst taking the level of risk expected within the sector.
- Finally we will assess a fund managers tenure, working on the premise that a long lasting fund manager is one that has experienced market fluctuations previously (albeit for different reasons) and has coped well with them.
Should none of our suggested funds be available within a certain sector we would then switch to the Modern Portfolio Theory. The reason for this is that Becketts believes that only the most talented fund managers and stock pickers have the ability to beat a sector average on a consistent basis. We do not however agree with all of the criteria and assumptions made within the Modern Portfolio Theory, such as information being readily available to all. If any of our main funds are unavailable we feel that switching to passively managed funds, with the added benefit of lower costs, is preferable to using fund managers we do not have full faith in. As such when considering your L&G plan, there are no actively managed funds that we use in our portfolios so instead we have looked at using passive low cost solutions where possible.
In order to ensure that this is always managed well and consistently we review the asset allocation on a quarterly basis, as well as the funds on a more regular basis, but officially each quarter.
We do so with the assistance and resources of Parmenion Capital Partners and Mr Simon Brett, who has in the past managed investments across the city of London and is now head of investments at Parmenion with over £4 billion under his management. As he has over 25 years in the industry and a wealth of experience behind him his guidance and advice is a great asset to Becketts, and although we do not always agree having a second opinion as well respected as Simons definitely helps in formulating our strategies.