Investment Process

It is the choice of asset class (cash, bond, equity, alternative) and geographic market (UK vs Japan, for example) that is the most important determinant of investment returns.  For this reason we place great emphasis on helping clients to select the asset mix that is suitable for their needs and then actively monitor and manage that mix with a view to enhancing returns.

There are two stages to the investment process:

  • First we decide whether, and to what degree, we will deviate from your chosen asset allocation to take advantage of anticipated market moves.
  • Second, we select individual securities to populate each asset class.

Asset Allocation

Our processes are designed to bring a high degree of objectivity to the choice of which asset classes should be over-weighted and which under-weighted.  This helps to avoid emotional responses to market movements and encourages us to make decisions based on the fundamental value of a market rather than following the latest fashion.  Any deviation from benchmark weightings is constrained within limits to ensure that investment risk remains within the parameters you have specified.  We use a variety of valuation measures and historical trends to identify whether a market is cheap or expensive.

Stock Selection

Objectivity again drives the choice of stock, whether it is an individual bond, equity or a fund.

Bonds – We select individual bonds by reference to their date of maturity, liquidity, credit risk and prospective return relative to risk.

Equities – We operate a three stage process for identifying attractive stocks to buy and, once purchased, for selecting the right time to sell:

  1. A computer model analyses the top 300 UK companies and identifies those that are undervalued and those that are overvalued based on each company’s price to earnings ratio relative to the market.
  2. Analysis of the strategic direction, competitive forces and quality of management for those companies highlighted by stage 1.
  3. Analysis of a company’s cash flow to identity whether it is creating value for shareholders.

Funds – We have access to a database containing performance and other data on more than 10,000 investment managers.  We screen funds on the basis of performance adjusted for risk, liquidity, quality of manager and the robustness of their investment processes.

We limit the number of holdings to 25 – 45 for portfolios with a value of £100,000 or more.  This number provides appropriate diversification but is low enough to limit costs and ensure that good investment ideas have a meaningful impact on performance.