Putting diversity at the heart of investment

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

“Advisers need to know their clients and their personal life goals, such as sending children to university or retiring within five years,” suggests Carbonneil. “They can then assess the level of risk they are prepared to take and whether they will be able to achieve their goals.”

They also need to be confident in the investment house they choose for their clients, as there are numerous approaches. Digging deep into their respective philosophies and approaches, for example, is extremely important.

“Advisers need to look between houses to ensure funds are being properly constructed,” she says. “A house may have five US funds but are they properly diversified? If not then they may still be highly correlated to one another.”

Architas was formed in 2008 to help investors meet their investment goals through their range of multi-manager solutions. The total amount of assets managed and advised on by the company is now around the£12.8 billion mark*.

“We believe that active management is a skill that rests on three key ideas: philosophy (what you believe), methodology (how you implement your philosophy) and portfolio construction (what the overall fund looks like),” she explains.

Active investing does not follow one path in its pursuit of alpha, according to Carbonneil, who believes it’s an art as well as a science. “It offers the opportunity to reduce as well as increase risk,” she points out. “For investors looking for alpha over the long term, it remains very attractive.”

As well as drawing on the expertise and convictions of seasoned, specialist managers, the process will see these investment professionals devising ways to combine various elements in an efficient and effective manner.

Architas, for example, starts with a set of allocations from a model designed by eValueInvestment Solutions. The team can deviate from these allocations and have a pre-determined ‘risk budget’ that can be spent on different portfolio tilts.

“It all comes down to the philosophy at the heart of active management: flexibility to deviate from the crowd,” explains Carbonneil. “The manager decides whether to deviate from the benchmark by taking on more risk (gearing up) if they are bullish, or by striving to reduce risk (gearing down) if their outlook is more bearish.”

Of course, a crucial element to this is having experienced analysts and portfolio managers on board that can make such calls. Advisers looking for investment partners, therefore, need to take a close look at the personnel within the house itself.

“It is possible to find portfolio managers with the ability to generate alpha on a regular basis if you have the right structure,” she says. “Advisers need to ensure there’s a strong, passionate team covering everything and a consistent ability.”