Investment Philosophy

We believe that:

Markets are efficient and share prices reflect what is known about a company at any moment in time. Such knowledge is limited to what has happened in the past. What may happen in the future is purely speculation and it is our view that trying to time investment markets is a pointless exercise and reliant on luck.

Diversification reduces risk is the discovery that won Harry Markowitz the Nobel Prize in Economics in 1990. Diversifying investment portfolios using different asset classes can reduce the level of risk and help to maximise investment return. The mix of asset types in a portfolio is the single largest factor in determining both the possible return and the level of potential downside risk.

The Three Factor Model is used to enhance returns over the longer term. In the early 1990s,      research carried out by Eugene Fama and Kenneth French showed that the following three factors account for more than 96% of stock market performance:

• Returns from shares are expected to be higher than from Fixed Income
• Small company shares (measured by market capitalisation) have a higher expected return than large company shares
• Lower priced, out of favour, value shares have a higher expected return than higher priced growth shares (measured by the ratio of a company’s book value to its market value)

Active versus passive fund management On average, actively managed investments underperform the market by a wider margin than passive investments. We believe in adopting passive strategies, where possible. Typically, these investments are more likely to capture market returns and benefit the investor by having considerably lower charges.

Market timing No one can consistently predict market performance. Getting it wrong can be very costly. Remaining fully invested over the long term will greatly increase the chances of capturing market returns.

Portfolio rebalancing is an important discipline. It is sensible to realign a portfolio when a stronger or weaker performing asset class has changed significantly from its original allocation in order to avoid increasing the exposure to risk. We recommend this is carried out on a regular basis.