We believe that the primary focus of private clients is preservation of their capital in real terms. The secondary focus is growth of capital and how cautious or aggressive a client wants to be. We reflect these two somewhat contradictory focuses across our multi-asset discretionary models via an absolute return focus where the target return is CPI plus a ‘growth spread’.
Assets typically fall into three categories – income producing, return generating or hedging – with the allocations into each varying by risk mandate and market environment. The concept of the model portfolios are based on a core/satellite approach incorporating the economic cycle and our inhouse macro research. Core exposure is typically taken through ETFs which, for fixed income, allow the composition to be optimized reflecting our view on duration and desired yield curve positioning and for equity to enable liquid global diversification.
Satellite exposure is based around thematic research that identifies individual positions that we believe will outperform over the current market cycle due to fundamental underlying changes in the world around us. Individual fixed income securities can be held to express specific sector, credit or durational views to generate incremental portfolio return. Individual stocks can also be held where we believe there are underappreciated, long term structural trends. The strategy is forward-looking as it aims to anticipate new trends, embrace change and take advantage of future growth opportunities that will span multiple economic cycles.