Putting diversity at the heart of investment

This article is part of
Multi-Asset Supplement - March 2014

There are four key components to a successful investment management team: a core investment philosophy, clear process, passion and a desire to find opportunities across global markets.

That’s the opinion of Stephanie Carbonneil, who runs the Architas Multi-Asset Active range of funds, which includes the Architas MA Active Intermediate Income fund, which is currently part of the Investment Adviser 100 Club.

“It’s also important to have people of various nationalities, with different levels of experience and academic backgrounds,” she says. “It means they will have their own approach to an issue rather than everyone thinking along the same lines.”

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At the heart of the Architas investment process is a solid and consistent approach based on quantitative and qualitative analysis. But beyond this it helps to have passionate people that have different backgrounds to understand the big picture and think differently.

“You need passionate, different people to make everything work,” she insists. “They need to be able to challenge each other in a healthy way but then be able to go for a coffee afterwards. Everyone in our team is outspoken – but they still get on well.”

All these various ideas and opinions, which are put forward by portfolio managers and analysts at the regular meetings which take place, are particularly useful considering that diversification is so much a part of the entire Architas multi-asset philosophy.

In fact, it is at the very heart of how the company builds its funds, which are divided into three ranges: active, blended and passive managed risk profiled solutions. Each is designed with the investor in mind.

“Diversity is in everything we do because it tempers volatility,” explains Carbonneil. “No matter how confident you may be in a manager you must accept the market is always changing and these changes may favour some managers more than others.”

Architas embraces three levels of diversification: across asset classes; within asset classes, such as by geographic region; and across investment managers. This combination, it is hoped, will reduce combined risk of the overall portfolio.

It could also limit reliance on any part of the portfolio to perform. Diversifying across asset classes increases the possibility that clients may enjoy more consistent returns than they may do from a fund that invests in one single asset class.

As well as equities, bonds and property, Architas also considers money market and alternatives, which brings into play all kinds of more esoteric investments. It even has full-time analysts scouring the market for such opportunities.

Examples of alternatives include commodities, hedge funds, absolute return and infrastructure. All such areas have traditionally been less correlated with equities and bonds and so the class could potentially provide good diversification benefits for a portfolio.

“People are very imaginative so you will see many different strategies, whether they are infrastructure projects, solar panels or even wind farms,” says Carbonneil. “These are likely to be completely different to anything else that is in the portfolio.”