Our Approach to Investment

Evidence Based Investing

Despite what you might have read or heard, no investment manager can predict the future accurately and consistently.

Active investment managers try to make good investment choices by researching the market and choosing those opportunities that will give their clients the best possible returns. Despite their best intentions, it is unfortunate that active investment managers simply don’t deliver on their marketing promises. Most under-perform the market in which they operate and those that do out-perform often charge so much that the relative gain is lost.

There are a small number of active managers that do out-perform their market after fees but, unfortunately, it’s not usually possible to be certain whether this was from luck or from good judgement.

If, with hindsight, we can say that at least some active managers succeed by employing good judgement we only know this by looking at past performance, so how can we decide in advance who will be the best investment managers of the future? Anyone can give you a list of past winners but no one can give you a list of future winners. We certainly can’t!

Evidence Based Investing does not try to beat the market or time the market, it simply aims to replicate it. It is based on decades long work of noble prize-winning economists and has proven to be a lower cost and more reliable way to access strong long-term returns.

It is counter-intuitive but time and again investors have found, to their cost, that investment returns are inversely proportional to the fees paid. Low-cost funds consistently out-perform high-cost funds.

Investment Specialists

We work closely with specialist investment firms, who provide Evidence Based and Index Tracking Portfolios. Their goals are aligned with ours and consistently deliver the returns you would expect by tracking the world’s markets, not trying to beat them but accurately replicating them.

We share a belief that:

• Risk & Returns are linked

• Capital Markets work

• Consistent out-performance is rare

  • There is a significant body of research to suggest that any short-term out-performance achieved by most active fund managers is down to luck rather than skill.

• Asset Allocation drives returns, not the stock-picking ability of investment managers

• Costs matter

• Investor behaviour is a key determinant of long-term outcomes

  • All too often, investors let their emotions get the better of them with dire consequences for investment returns

• Diversification is essential

  • A truly diversified portfolio invests across the world, in companies and countries in the proportions they represent of the total world market

Evidence Based Investing helps us sleep at night because we know our clients’ returns are not based upon the stock-picking ability of individual investment managers but on the collective wisdom of all market participants.

What about Risk?

As mentioned above, we believe that risk and returns are aligned, so taking more risk should give you the potential for better long-term returns but this, of course, is not guaranteed. If it was guaranteed then you wouldn’t be taking any risk.

Imagine your best friend was starting a new business and they needed £50,000 of additional funds to allow them to launch. Broadly there are two ways you could help them:

1. You could buy a “share” of the business and participate in all its future ups and downs. Your share could become worth millions or you may lose it all.

2. You could lend them the money and draw up a contract or “bond” that outlines what interest you will receive and when your loan would be repaid.

Clearly the first option offers better long-term potential but the second option is less risky, particularly if the loan has a relatively short repayment period.

Most investment portfolios are a blend of 1,000’s of shares and 1,000’s of bonds with a bias towards shares for higher risk portfolios and a bias towards bonds for lower risk portfolios. This doesn’t mean bonds don’t carry some risk. Remember, bonds are loans to governments or corporations and the longer the term until your capital is repaid, the higher the risk. We, therefore, believe that longer-dated bonds should be considered more like shares than shorter dated bonds that are closer to cash in their behaviour.

How much risk you take should be established by considering three interacting factors:

We will work with you to find the most appropriate risk profile for your circumstances.

This blog is for information purposes and does not constitute financial advice, which should be based on your individual circumstances. The value of investments may go down as well as up and you may get back less than you invest. Past performance is not a reliable indicator of future performance.