2020 was a rollercoaster year for investors, not seen since the 2008 global financial crisis. Uncertainty in the markets is expected to continue for the foreseeable future, so getting what you need or expect from your investment savings is challenging.
It’s that bit harder when faced with an increasingly complex landscape of apparently endless choices and confusing jargon.
To help people understand investments and some of that jargon, let’s try using a food analogy. Our diet has a direct impact on our well-being; not only what we eat, but how much, when and how the food is prepared also makes a difference. Sometimes we adjust our diet in the short or longer term to achieve a specific personal goal. Not unlike considerations that influence an investment portfolio.
Three common terms you might have heard of in the investment world:
Think food groups. Proteins, carbs, fats, minerals and so on. On occasion you consume more, or less, of a certain group, with a particular personal objective in mind. In investment speak, these are shares (equities), bonds, real estate, cash and so on. Each asset class plays a different role in a portfolio, the same way as different food groups in your diet.
Investment philosophy (or style)
Think cuisine. The specific ingredients that are selected and how they are prepared to make your meal; Italian, Caribbean, French etc. In the investments world we talk about investment styles such as Value, Momentum, Quality, Growth and so on; each style makes use of specific investments, within asset classes, to target a particular outcome.
A crucial role. The chef that uses their specific skill set to select, prepare and blend ingredients (asset classes) in the ‘style’ for which they are known, to serve up a feast. Chefs ‘manage’ food; Asset managers manage assets.
So in simple terms we just need to decide what type of investment is right for us, how should it be managed and by whom? Or is there more?
Diversification has been called ‘the only free lunch in investing’. How often have we heard of people losing a lot of money through a single failed investment?
Investing in different asset classes across different industry sectors, currencies and regions can help reduce the overall investment risk of a portfolio and help manage short-term volatility. This is because it’s unlikely that all investments will move in the same direction, at the same rate and at the same time in response to a specific market event. A lack of diversification leads to what we term concentration risk or ‘having all your eggs in one basket’.
On the face of it, the concept is simple enough, however, to structure a well-diversified portfolio requires some experience. There are different ways of diversifying your investments, depending on your investment goals and time horizon. Also, let’s not forget for many investors there are supplemental objectives; the investment world has a significant role to play in society and the environment, such as considering Environmental, Social and Governance factors. There is so much more behind an active contribution than selecting or excluding investments that seem more or less sustainable based on what’s written on the side of the tin – but that’s a subject for another article!
A portfolio solution
Multi-management is an investment approach which consists of combining several asset managers, across different markets, asset classes, investment philosophies and styles of money management, to enhance diversification and optimise investment returns.
A multi-manager does not manage assets, such as the buying and selling of shares, bonds and so on. Instead, a multi-manager invests with different asset managers who make the day-to-day investment decisions. By researching the asset managers in the industry, multi-managers are uniquely positioned to identify their core competencies and combine these into multi-managed portfolios that ensure effective diversification and that all important influencing of ESG factors, such as climate change amongst other key objectives.
We are multi-management
With over two decades of doing this globally, multi management is in our DNA, and there is a growing interest in multi-managed solutions across the broader market, globally.
Multi-managed solutions provide investors with a unique opportunity to address the complexity, concerns and anxiety surrounding the management, oversight and performance of their savings and investments both in terms of financial and environmental outcomes.
It is important to understand that different styles of money management excel at different times as financial markets move between cycles. This means that asset managers perform differently to one another at various stages of the market cycle, and that no single asset manager can outperform at all stages of the market cycle. Pinpointing which asset managers will be the best, and when, is easier said than done.
Consequently, not all multi-managers are created equally.