‘Once-in-a-decade’ events are becoming more and more common, but avoiding them altogether is just one way of protecting portfolios. ART is building new capabilities to absorb their impact – and come back from them even stronger.
With almost 50 per cent of its nearly $100 billion FUM now internally managed, Cbus has seen fees come down and gained more control over its ever-growing portfolio. But in hindsight it “could have pushed a bit harder”.
Don’t ‘set and forget’ diversification: Atlantic House
Portfolio construction needn’t be a complex endeavour, but any prudent allocation of assets does require more than a mere nod to adequate diversification. And any effort to diversify a clutch of assets means paying careful attention to correlation levels which, if left unchecked, could lead to an unacceptable portion of assets losing value at the same time.
This is where investment strategies often fall down according to Andrew Lakeman, co-founder of London-based boutique investment manager Atlantic House, who believes investors may be under the misapprehension that they’re more diversified and have more downside protection than they actually do.
Too often, investors take a set-and-forget portfolios once they’ve implemented a cursory degree of diversification. Factors like industry and geography might be taken into account, or even thematics like value and growth. Investors might even think to allocate across forward-thinking assets like technology and sustainability products, as well as legacy ones like fossil fuels and manufacturing.
But how do investors stay on top of diversification and maintain adequate levels of non-correlation when markets oscillate with every breath, when asset relationships are as fickle as they are malleable?
It’s an issue Lakeman has seen before: Atlantic House manages A$7.5 billion for discretionary investment managers, family offices, financial advisers and institutions from its UK base using a mix of equities and fixed income, as well as alternatives that focus on non-correlative investment returns.
Atlantic House’s growth in the UK has been predicated on the fact that its strategies blend well with those provided by other investment houses to add appropriate levels of non-correlative weight to portfolios. It’s a dynamic the founder believes can be replicated in Australia.
“In today’s volatile market, optimal portfolio diversification and evidence-based portfolio construction are more critical than ever,” Lakeman says. “These principles align seamlessly with the investment approaches adopted by several prominent managers and investors in Australia.”
Further, Lakeman says, the experience Atlantic House has gleaned across international markets has actually given the team a deeper base with which to address the Australian market’s needs.
“We believe through a greater understanding of investment behaviour across various markets environments, investors can build resilient portfolios, mitigate anxieties associated with market timing and achieve more predictable outcomes in an unpredictable market,” he says.
It’s through these strategies, Lakeman explains, that investors can limit the damage caused by significant market events. This is especially true for pre and post retirees, who are looking for stable income combined with steady relative returns, while wishing to avoid unnecessary risk.
“We’ve set out to create a fund that achieves long-term returns that are not dependent on rising markets, equity or bond values,” he says. “Our approach often involves forgoing the possibility of unlikely significant returns in favour of increasing the likelihood of achieving a targeted, satisfactory returns.”
