Dan James, Head of Asset management, Charles Stanley, details the beliefs that run through their managed portfolio service (MPS).
While it may feel like we are living in a uniquely turbulent age, financial markets have always brought uncertainty. Finding a coherent way to navigate that uncertainty is part and parcel of successful investing. At Charles Stanley, we have built our investment process on a number of truths, that provide the framework for every decision we make. In this article, I will explain the beliefs that underpin our range of Managed Portfolio Services.
Outcomes are more important than relative returns: All our products reference inflation rather than benchmark-relative returns. Ultimately, clients need real world returns that align to their objectives. We target outcomes, rather than setting ourselves targets to beat arbitrary benchmarks that are not aligned to the results clients need.
The risk and reward characteristics of assets change over time: As we move through the current market cycle, differentiation will become critical. There will be winners and losers within asset classes and even sectors, it is imperative to use a common methodology to evaluate this, both to understand the risks taken and what happens if it goes wrong, versus the reward potential if it goes right. If the expected gain is a fraction of the downside risk, it is likely to be a poor investment.
It is important to look beyond generalisations about the perceived riskiness of individual asset classes. It also needs to be put in context. An opportunity that might have looked attractive versus other opportunities on a standalone basis could destabilise the risk return balance of a portfolio, leading to unfavourable and unexpected returns.
Portfolios need to be agile: Rather than simply following a fixed rebalancing process, investors need to be alert to evolving market conditions and ready to respond quickly where necessary. Automatic rebalancing can increase transaction costs unnecessarily and may be a blunt instrument. We believe that a decision to leave the portfolio unchanged, known as drifted weights, should be a considered and active investment decision, but one that does not incur further unnecessary costs.
Diversification is fluid: The relationship between asset classes isn’t static. It is not enough to have a portfolio of equities and a portfolio of bonds – the traditional 60/40 model – and assume it will be effective in all conditions. In reality, diversification needs to take a range of factors into account, including interest rates, inflation or volatility to ensure that it works across a range of environments.
The best opportunities are not confined to a single region: Historically, private client portfolios have been dominated by a home bias, driving investments into the UK. This narrows the opportunity set. For example, diversification can be constrained by the sector make-up of the UK markets, while greater choice and opportunity might exist in the US or further afield. We believe investors should retain an open mind on where returns are derived.
Asset allocation is the key driver of returns: Research shows that asset allocation – the blend of asset classes employed in a portfolio – drives 80% of an investor’s long-term return. As a result, we care passionately about getting it right. We have our own proprietary process for evaluating asset classes and believe it is fundamental to a sound investment process. We do not want to be ‘buying in’ a third-party view for this important part of our clients’ returns.
These are the beliefs that run through our managed portfolio service (MPS). The MPS is the distillation of all our views, giving your clients a professionally managed portfolio, to their risk profile, at a competitive cost.
We believe a flexible approach, that takes in a breadth of asset classes. and can adapt effectively to changing market conditions, is the best way to deliver client outcomes.
Find out more
For more information about how Charles Stanley can partner with your business. contact Head of Strategic Partnerships, Tom Hawkins on 020 3627 3990, or email tom bawkins@charles-stanley.co.uk or visit the Charles Stanley website here.
The value of investments, and the income derived from them, can fall as well as rise. Investors may get back less than invested. Past performance is not a reliable guide to future returns. Charles Stanley & Co. Limited is authorised and regulated by the Financial Conduct Authority.
About Dan James
Dan joined Charles Stanley in 2020 as the Head of Asset Management. He is responsible for the central investment process and chairs the investment Strategy Forum. He also chairs the Responsible Investment Committee at Charles Stanley. Previously Dan led the Fixed Income business globally at Aviva Investors and prior to that he was the CIO Absolute Return and Global Aggregate at BNP Asset Management and CIO Fixed Income at ABN Amro.
