Our superannuation fund clients regularly stress their need for real growth, while managing volatility and limiting drawdowns for their members. The Investec Diversified Growth Fund (Australian) aims to do just that: protecting capital and generating real returns.
If we look at our longest running strategy*1 , the returns fluctuate within a narrower range compared to traditional global equity solutions.
Figure 1: Dispersion of risk adjusted returns (GBP strategy)
Past performance is not a reliable indicator of future results, losses may occur.
Source: Investec Asset Management, 30 September 2017. ‘Diversified Growth’ relates to the Investec Diversified Growth GIPS composite gross of annual management fees, in GBP. Composite inception 1 May 2008. Monthly returns annualised over rolling 5 year periods. Performance would have been lower had management fees been included. This target and the expected volatility may not be achieved. Global equities is defined as the MSCI World GBP Hedged Total Return index. For further information on indices and performance targets, please see the Important information section.
The strategy invests in a broad opportunity set of Growth, Defensive and Uncorrelated assets. We assess these opportunities using a consistent framework that looks at Fundamentals, Valuation and Market Price Behaviour. We build the portfolio by focusing on underlying asset behaviours and relationships, rather than relying on asset class labels. In this way we achieve true diversification, helping the portfolio to be resilient in times of market stress.
We follow a bottom-up investment process with three key stages: Investment Research, Idea Generation/Market Context and Portfolio Construction.
The process is designed to unearth return-generating ideas in all market environments. Specialist research groups cover more than 20 sub-categories of asset classes, screening in excess of 20,000 securities with a value of over US$64 trillion. Our bottom-up approach helps us to further refine our security selection process. This is particularly important where we have direct holdings (often baskets of securities and relative value positions).
Figure 2: Multi-Asset investment process
Source: Investec Asset Management, 30 September 2017. For further information on investment process, please see the Important Information section.
The Multi-Asset team comprises seven specialist research groups, focusing on uncovering compelling investment ideas. Each group includes portfolio managers and analysts. The heads of these groups have worked together at IAM for 17 years on average.
Figure 3: Asset classes and strategies covered by Specialist Research Groups
Source: Investec Asset Management, 30 September 2017.
Idea generation is backed by deep research and a solid understanding of market context. The result is a carefully constructed portfolio designed to meet the investment objective. Our positioning is dynamic and adjusts continually in light of changing market conditions.
Figure 4: Examples of portfolio positioning in terms of Growth, Defensive and Uncorrelated exposures (GBP Strategy)*
Source: Investec Asset Management, 30 September 2017. *Since inception date 01 May 2008. The portfolio may change significantly over a short period of time. Figures may not add up to 100% due to rounding.
We have shown the portfolio allocations for noteworthy points-in-time over the period that we’ve been managing the Strategy on the right hand side. August 2008 was the month prior to the bankruptcy of Lehman Brothers, which signalled the tipping point for the global financial crisis, with the Strategy holding close to its historic lowest allocation to Growth assets. January 2013 was the start of a strong year for equity markets with the Strategy holding close to its historic highest allocation to Growth assets, current allocation to Growth, Defensive and Uncorrelated assets.
We manage risk through dynamic diversification and explicit portfolio protection. Our downside protection strategies have helped to minimise losses at times of heightened volatility, as evidenced in Figure 5.
Figure 5: Illustrative performance of DGF, global equities and a 60/40 portfolio at times of market stress (GBP strategy)
Past performance is not a reliable indicator of future results, losses may occur.
Source: Investec Asset Management, 30 September 2017. GBP performance is for illustrative purposes only. For further information please see the Important Information section. Maximum drawdown from May 2008 to February 2009.
Performance is gross of fees (returns will be reduced by management fees and other expenses incurred relative to its advisory account), income is reinvested, in GBP.
Minimising losses at times of heightened volatility
Periods of heightened volatility shown relate to instances where events have disrupted markets, resulting in the expected volatility of the FTSE 100 (as measured by the VFTSE index) exceeding 32. ‘DGF’ relates to the Investec GBP Inflation Plus composite gross of annual management fees, in GBP. ‘Equities’ relates to the MSCI World GBP Hedged Total Return index. ‘Traditional Balanced 60/40’ relates to a composite index comprising 60% allocated to the MSCI World GBP Hedged Total Return index and 40% allocated to the Citi WGBI GBP Hedged index. “Maximum drawdown” is the maximum loss from a peak to a trough before a new peak is attained. “Global Financial Crisis” drawdown is calculated from May 2008 onwards, using monthly data. “Eurozone Crisis Part 1” drawdown is calculated from May 2010 onwards, using monthly data. “Eurozone Crisis Part 2” drawdown is calculated from April 2011 onwards, using monthly data. “Brexit” drawdown is calculated from 1st June to 30th June 2016, using daily data.
Currency exchange: Changes in the relative values of different currencies may adversely affect the value of investments and any related income.
Default: There is a risk that the issuers of fixed income investments (e.g. bonds) may not be able to meet interest payments nor repay the money they have borrowed. The worse the credit quality of the issuer, the greater the risk of default and therefore investment loss.
Derivative counterparty: A counterparty to a derivative transaction may fail to meet its obligations thereby leading to financial loss.
Derivatives: The use of derivatives may increase overall risk by magnifying the effect of both gains and losses. This may lead to large changes in value and potentially large financial loss.
Developing market: Some countries may have less developed legal, political, economic and/or other systems. These markets carry a higher risk of financial loss than those in countries generally regarded as being more developed.
Interest rate: The value of fixed income investments (e.g. bonds) tends to decrease when interest rates and/or inflation rises.
Multi-asset investment: The portfolio is subject to possible financial losses in multiple markets and may underperform more focused portfolios.
Investing in China: Investment in mainland China may involve a higher risk of financial loss when compared with countries generally regarded as being more developed.
The information may discuss general market activity or industry trends and is not intended to be relied upon as a forecast, research or investment advice. The economic and market views presented herein reflect Investec Asset Management’s (‘Investec’) judgment as at the date shown and are subject to change without notice. The value of investments, and any income generated from them, can go down as well as up and will be affected by changes in interest rates, exchange rates, general market conditions and other political, social and economic developments, as well as by specific matters relating to the assets invested in.
There is no guarantee that views and opinions expressed will be correct, and Investec’s intentions to buy or sell particular securities in the future may change. The investment views, analysis and market opinions expressed may not reflect those of Investec as a whole, and different views may be expressed based on different investment objectives. Investec has prepared this communication based on internally developed data, public and third party sources. Although we believe the information obtained from public and third party sources to be reliable, we have not independently verified it, and we cannot guarantee its accuracy or completeness. Investec’s internal data may not be audited. Any decision to invest in securities or strategies described herein should be made after reviewing the prospectus and conducting such investigation as an investor deems necessary and consulting its own legal, accounting and tax advisors in order to make an independent determination of suitability and consequences of such an investment. This material does not purport to be a complete summary of all the risks associated with this Strategy. A description of risks associated with this Strategy can be found in the Prospectus or other disclosure document for the fund or Strategy. Copies of such documents are available free of charge upon request. Investec does not provide legal or tax advice. Prospective investors should consult their tax advisors before making tax-related investment decisions.
There is no assurance that the persons referenced herein will continue to be involved with investing for this Strategy or Fund, or that other persons not identified herein will become involved with investing assets for the Manager or assets of the Strategy or the Fund at any time without notice.
Any description or information regarding investment process or strategies is provided for illustrative purposes only, may not be fully indicative of any present or future investments and may be changed at the discretion of the manager without notice. References to specific investments, strategies or investment vehicles are for illustrative purposes only and should not be relied upon as a recommendation to purchase or sell such investments or to engage in any particular Strategy. Portfolio data is expected to change and there is no assurance that the actual portfolio will remain as described herein. There is no assurance that the investments presented will be available in the future at the levels presented, with the same characteristics or be available at all. Past performance is no guarantee of future results and has no bearing upon the ability of Manager to construct the illustrative portfolio and implement its investment strategy or investment objective.
The target is based on Manager’s good faith estimate of the likelihood of the performance of the asset class under current market conditions. There can be no assurances that any Strategy or Fund will generate such returns, that any client or investor will achieve comparable results or that the manager will be able to implement its investment strategy. Actual performance of investments and the Fund or Strategy overall may be adversely affected by a variety of factors, beyond the manager’s control, such as, political and socio-economic events, adverse changes in the interest rate environment, changes to investment expenses, and a lack of suitable investment opportunities. Accordingly, Performance Targets may be expected to change over time and may differ from previous reports.
Specific Portfolio Names
References to particular investment or strategies are for illustrative purposes only. Unless stated otherwise, the specific companies listed or discussed are included as representative of the Strategy or Strategies. Such references are not a complete list and other positions, strategies, or vehicles may experience results which differ, perhaps materially, from those presented herein due to different investment objectives, guidelines or market conditions. The securities or investment products mentioned in this document may not have been registered in any jurisdiction. More information is available upon request.
Indices are shown for illustrative purposes only, are unmanaged and do not take into account market conditions or the costs associated with investing. Further, the manager’s strategy may deploy investment techniques and instruments not used to generate Index performance. For this reason, the performance of the manager and the Indices are not directly comparable.
If applicable MSCI data is sourced from MSCI Inc. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, endorsed, reviewed or produced by MSCI. None of the MSCI data is intended to constitute investment advice or a recommendation to make (or refrain from making) any kind of investment decision and may not be relied on as such.If applicable FTSE data is sourced from FTSE International Limited (‘FTSE’) © FTSE 2017. Please note a disclaimer applies to FTSE data and can be found at www.ftse.com/products/downloads/FTSE_Wholly_Owned_Non-Partner.pdf