What does it mean to say we’re agnostic when it comes to investing? At its heart, taking an agnostic approach to your investment style means not advocating for one style only at the exclusion of the others. At Progeny, we run three core investment mandates: passive, active and evidence-based.
From a client or investor perspective, being agnostic means a number of things. It means we are able to be flexible and adaptable to their circumstances, putting them and their goals at the heart of the process. In this article, I’ll outline the philosophy and the process behind this approach.
The factors to consider
Our solutions in all three of these styles are constructed using the same building blocks and use a similar process. The core factors we assess when choosing investments are risk, reward and cost.
Is the investment worth the risk it comes with? Or to look at the question the other way round: is the potential reward for the investor worth taking on that level of risk for? Then, are the total costs of the portfolio worth what it delivers? These questions and considerations are the starting point for our investment selection process.
In putting our portfolios together we use both quantitative and qualitative measures to inform our selection. To start with, we apply quantitative filters to narrow down the investment universe. The factors of risk, reward and cost are built into these filters and help to narrow down the number of available investments worth considering for inclusion.
Once we have run the quantitative filters, we start with the qualitative research. This is where we do much of our deep-dive due diligence. We meet with and interview fund managers, usually undertaking several meetings before we make any investment. We consider risks and liquidity.
Performance, process and prediction
We look at performance, but we also dig deeper to get a proper look under the bonnet at how they work. It’s vital to consider all aspects, including how long their team has been together, the mechanics of their process, how it works and fits together. From this, we put together a comprehensive research document that ties everything up.
On the basis of the data we have gathered, we build a prediction of what we expect the fund to do and follow its progress. We want to be able to predict correctly how it will behave so it’s important at this stage, in terms of the fund’s ultimate selection by us, that it performs in the way we have projected.
Then if we take the decision to purchase a fund we meet with the fund manager regularly – at least once a year, usually more often – to continue to monitor the fund’s ongoing performance and to check that the fund manager is sticking to the process.
We go through this procedure for all our portfolios: active, passive and evidence-based.
A key attribute when we are assembling our portfolios for clients is diversification. A well-diversified portfolio helps manage risk by mixing a wide variety of investments in a portfolio from a range of asset types, sectors and geographies. It limits exposure to a single asset or risk.
When we are assembling a portfolio, we don’t take big or binary bets one way or another with the investment picks. Tech funds have performed well in recent years and have been a driver of strong portfolio performance but including a large proportion of tech funds in any portfolio is taking a big bet on their continued strong performance. Our approach is to blend investments to create a diversified portfolio to deliver stable and steady returns, a smoother investment journey, and avoid a ‘feast or famine’ approach.
Benefits for investors
It goes without saying that every client is different. So a one-size, or rather, one-style-fits-all approach won’t work. When we build a portfolio for a client it is informed by choosing the best and most appropriate investing style and portfolio solutions to help them achieve the results they are looking for. This is what being style agnostic means to us and these are the benefits it brings to our clients.
If you would like to review the performance of your portfolio, our Portfolio Review Service can get under the bonnet to deliver insights on risk, reward and cost. It is an independent evaluation of the investment strategy and performance of your current investment manager after costs, and a comparison with the industry generally.
If you’d like to discuss this or your investment management needs in more detail, please get in touch.