DISCRETIONARY PORTFOLIO MANAGEMENT
AN INTERNATIONALLY DIVERSIFIED INVESTMENT PORTFOLIO
AssetHouse provides a full spectrum of investment management services and products, including a range of risk profiled portfolios as well as the buying and selling of mutual funds, shares, etc.
Providing the flexibility to meet your requirements precisely, a choice of investment services is available, with the option of discretionary or non-discretionary management so that you can choose how active a part you wish to play in the process. Further flexibility comes from the extensive choice of investment media (best of breed) available, including hedge funds designed to fulfill a particular role in your portfolio.
Helping you to develop and implement an investment strategy, we provide you with information, collected by analysts throughout the world. Their informed views draw on sources that are not normally available to private individuals.
This enables us to offer you sound advice on asset allocation and diversification, and has earned us our enviable track record in investment management. A track record that depends on the support we provide to you every step of the way regarding benchmark selection, determining risk capacity and helping you to achieve your financial objectives.
THE BENEFITS OF DISCRETIONARY INVESTMENT MANAGEMENT
AssetHouse offers a comprehensive discretionary investment management solution designed for high net-worth individuals.
The Benefits Include:
Access to the best investment houses and fund managers through a single portfolio;
Access to funds that ordinarily require high minimum investments as well as funds that are normally closed to new investors;
Ongoing quantitative and qualitative analysis of existing and potential fund managers;
Optimal asset allocation based on the overall mandate and risk capacity of the client;
Diversification that is meaningful when measured on a risk/return basis;
Protection against over-exposure to a single market sector or asset class;
Daily monitoring of each fund to ensure the ongoing performance of our client’s portfolios;
Boutique approach to servicing your needs combined with depth of resources and stability of a large money manager;
Low investment management fees compared to insured and traditional institutional type products.
We use a multi-disciplined methodology combining qualitative, quantitative, fundamental and technical approaches to create a balanced, less vulnerable position. This process aims to maximise returns, limit volatility, and manage investment risk with rigorous objectivity. It also aims to deliver consistent returns and a level of predictability unavailable through traditional approaches.
The reality is that as your personal wealth grows, so does the complexity of your financial affairs. By selecting AssetHouse as your financial partner, you can be assured that your investment decisions are being made by an experienced investment manager with access to a team of investment professionals from around the world.
WHAT WE DO?
To answer the question of “what do we do”, the process is essentially as follows (assuming that we or your financial advisor has gone through the financial planning process of getting to know you, your risk profile, investment objectives, etc.):
Construct a portfolio consisting of various products across a number of different asset classes (e.g. bonds, equities, cash, hedge funds, property, commodities, etc.) based on various data that we keep on those asset classes. You will often hear investment professionals refer to this as strategic asset allocation. Consider this a first draft of the final portfolio.
Fine-tune the portfolio in accordance with our expectations going forward (the past and the future are often two very differentthings). For instance, we might recommend a lower allocation to equities and a somewhat higher allocation to hedge funds than the strategic model (step 1) would suggest. This is known as the tactical overlay.
We have now identified a number of boxes (i.e. asset classes) in different sizes that comprises the total portfolio. We subsequently fill each box with what we consider to be the best managers within each of these segments.
After the portfolio has been established, we watch the managers, and we occasionally propose changes to the portfolio as conditions change.
Asset allocation is the primary determinant of total portfolio performance. As such, the key to a successful investment strategy is determining, implementing and monitoring an appropriate asset allocation
At AssetHouse, we focus on five types of diversification: asset class, currency, region, investment style and fund manager.
With us, your capital will be invested in an optimal mix of securities based on past and forecast returns, volatility, beta values, correlations and co-variances that match your quantifiable risk tolerance and give you the best possible rate of return.
Subject to specific needs and requirements, we operate within a very broad universe of assets classes, offering investment opportunities across the entire spectrum of risk. This chart illustrates the historical returns and standard deviation (volatility or risk) of some of the investment media available.
Investors face many different forms of risk depending on the kinds of investments they choose.
Some types of risk are:
Company risk (unsystematic)
Market risk (systematic)
Asset class risk
Interest rate risk
Market timing risk
UNDERSTANDING INVESTMENT RISK
Essentially, investment risk is the chance of loss due to the uncertainty of future events. Many factors can affect the value of your investments.
For example, there are risks in political systems that can reduce the value of an investment. A Company you invest in may undergo unforeseen changes in management. Investor emotions may be unpredictable.
Uncertainties in exchanges, rates of currencies, and in interest rates also affect investments.
Usually, investors deal with risk in two ways: one is to simply guess at it, and the other is to study as many factors as possible and choose the most promising course of action.
Risk is an inherent part of investing. Generally, investors must take greater risks to achieve greater returns.
Those who do not tolerate risk very well should have a higher allocation to cash and bonds whereas those with a higher tolerance for risk may choose a larger holding in equities.
Modern Portfolio Theory assumes the returns on various assets are related to the risk of holding them, as measured by the volatility of their returns. The greater the expected volatility, the greater the return investors should expect for taking that risk.
RISK / RETURN: THE FOUR CORNERS
This means that on a chart, the best performing assets are the ones closest to the upper left corner—the point combining the highest return with the least amount of risk.
The worst performing assets are those nearest the lower right hand corner— the point that combines the highest risk with the lowest return.
The other two corners of the chart are neutral territory. Assets in those corners may be superior or inferior, depending on the investor’s tolerance for risk.
The overall volatility (risk) of an optimised portfolio will be less than the average volatility of the securities in the same portfolio. In statistical terms, this effect is due to lack of covariance.
RISK / RETURN: GLOBAL ASSET CLASSES
Our optimisation process starts after the initial selection of asset classes. Minimum and maximum holding ranges are established for each asset class to ensure adequate diversification before running the strategic asset allocation program. We use historical and forecasted returns, standard deviations, correlations, and co-variances in calculating the optimal mix of assets for a portfolio at any level of desired volatility.
The process requires adding and deleting asset classes and changing holding constraints until the optimal mix of assets is achieved that meets each investor’s risk tolerance and required rate of return. The portfolio is then compared against other portfolios and independent variables to calculate beta, alpha coefficient, Sharpe and Sortino ratios , etc. These values fairly indicate how the portfolio will react in different “what if” scenarios.
Next, we fine-tune the portfolio in accordance with our expectations going forward (tactical overlay). We seek to add value at three levels: asset class (by moving between equities, bonds, hedge funds, property and cash), region (by shifting assets across regions / countries within asset classes) and currency (by managing the allocation to each currency). AssetHouse proactively shifts portfolio weightings to take advantage of asset classes and markets that are expected to perform well and reduces exposure to those holdings that are expected to underperform.
Finally each investor’s optimal portfolio is implemented by selecting individual funds, which closely represent the selected asset class characteristics.
Our dynamic asset allocation approach gives us an opportunity to re-evaluate and re-optimise each client’s portfolio holdings at regular intervals to reflect any ongoing changes in their personal situation as well as changes in micro and macro economical environment.
50% of managers will, by definition, outperform their peer group every year. It may be due to skill but could also be a result of sheer luck. Only by introducing qualitative factors in the assessment process, can one minimise the risk of picking managers who are simply lucky. In the qualitative assessment process, we focus on:
Assets under management (are there any capacity constraints?).
Decision making process (is the manager using own research or third party research?).
Investment discipline (is style drift an issue?).
Risk management procedures (does the manager understand and manage risk well?).
Management team (depth and background checks).
Macro outlook (is the strategy likely to do well?)
Currently there over 55,000 offshore mutual funds, more than 8,000 hedge funds, 60 currencies and 100 market exchanges operating around the world. For AssetHouse seeking broad exposure in various asset classes, including index funds in our client’s portfolios is a proven method of investing.
An index fund is a mutual fund that mirrors as closely as possible the performance of a financial market index (e.g. FTSE 100, S&P 500, MSCI World Equity, etc). Index funds exist for a broad range of asset classes, including bonds, equities, property, commodities, hedge funds, and others.
Unlike conventional investing strategies, index funds are designed to track, rather than outperform the market. Surprisingly, over time, the average index fund has tended to outperform the majority of actively managed funds in each category. Of course, many actively managed funds do be at the market in the long run but those cases are exceptional.
More often, today's top-performing funds become tomorrow's average performers.
The Benefits of Adding Index Funds to a Portfolio:
Reduces chances of underperformance
Enhances portfolio diversification (index funds 8 to 10 times more diversified).
Various international studies have shown that index investing outperformed the average actively managed fund. Over the past 10 years, only 13.5% of US large blend funds outperformed the S&P 500 Index.
Most international institutional investors mix active and passive index strategies to maximise returns.
Clients are assured of a market related performance.
Indexing removes the risks of selecting the wrong fund manager.
Eliminates the risk of picking the wrong region / country or investment style (growth vs value)
A hedge fund is a fund that can take both long and short positions, use arbitrage, buy and sell undervalued securities, trade options or bonds, and invest in almost any opportunity in any market where it foresees impressive gains at reduced risk. Hedge fund strategies vary enormously - many hedge against downturns in the markets - especially important today with volatility and anticipation of corrections in overheated/undervalued stock markets. The primary aim of most hedge funds is to reduce volatility and risk while attempting to preserve capital and deliver positive returns under all market conditions.
The Benefits of Adding Hedge Funds to a Traditional Portfolio:
Academic research proves hedge funds have higher returns and lower overall risk than traditional investment funds.
Hedge funds provide an ideal long-term investment solution, eliminating the need to correctly time entry and exit from markets.
Adding hedge funds to an investment portfolio provides diversification not otherwise available in traditional investing.
Hedge Fund of Funds— significantly reduce individual fund and manager risk.
Hedge Fund of Funds— allow access to a broader spectrum of leading hedge funds that may otherwise be unavailable due to high minimum investment requirements.
Absolute returns are the key driver, with hedge fund managers typically investing their capital alongside their clients. Moreover, the sector attracts prime fund management talent, highly motivated by remuneration that focuses on investment performance.
AssetHouse’s experienced investment managers’ work you in the initial assembly and ongoing management of your portfolio, including the selection of hedge funds.