Investment research committee

Investment research committee

Image by Mediamodifier from Pixabay

Meeting your financial goals so that you and your loved ones are free to live the lives to which you aspire requires high-quality, ongoing financial planning and the construction and maintenance of a robust, well-diversified, long-term investment strategy.  Bloomsbury’s Investment Research Committee (IRC) is responsible for the latter’s ongoing governance.

In most walks of life, when you employ a professional or craftsman you expect a little bit of ‘action’ for your money.  Now is generally better than later and more is generally better than less.  However, this generality does not apply in all fields.  Take, for example, the case of a GP whose patient comes into the surgery with a very sore throat and flu-like symptoms.  Today, many GPs feel under increasing pressure from patients to provide some ‘scientific’ solution, such as the prescription of antibiotics, to their ailments and some feel cheated when the advice they receive is simply to take a couple of paracetamol tablets and go to bed for a day or two.  Do we doubt the training, experience and wisdom of the GP because of the advice we receive?  Hopefully not; after all, science tells us that antibiotics don’t work on viruses, only bacteria.

These same pressures apply to wealth managers like us when it comes to investing.  Adopting an evidence-driven, systematic approach to investing can sometimes feel as if there is not much portfolio ‘action’.  The evidence tells us not to try to time when to jump in or out of markets, pick individual stocks, or chase recently ‘hot’ funds but instead to set a long-term strategy, populate it with excellent funds and rebalance it regularly.  That takes much of the ‘action’ out of the portfolio.  It would be wrong to think that this is the result of a set-and-forget strategy.  Above the surface, it can seem that not much is going on but that is far from reality.

Figure 1: Systematic investing – the view from a client’s perspective

Image source: Albion Strategic Consulting, generated using ChatGPT[1]

The seeming lack of trading activity in a portfolio from one period to the next belies the considerable time, effort and discipline that goes into achieving this for our clients.  Bloomsbury’s IRC sits at the heart of this effort and one central question drives its efforts: ‘Does the investment approach adopted still provide our clients with the greatest chance of a favourable investment experience, based on the latest evidence, theory and fund products available to us?’.  The IRC is always open to challenges to the status quo.  That said, the evidence in support of a systematic approach is highly compelling and any small portfolio changes that may arise are likely to be evolutionary, rather than revolutionary.

In reality, the IRC is paddling away furiously to make sure that client portfolios remain robustly structured, issues and concerns are raised and resolved and that the incumbent funds used still remain best-in-class choices.

Figure 2: Systematic investing – the view from the Investment Committee’s perspective

Image source: Albion Strategic Consulting, generated using ChatGPT[1]

Ongoing oversight is both regular and robust.  The chart below outlines the key responsibilities of the IRC.

Figure 3: The IRC provides ongoing governance of the process

Source: Albion Strategic Consulting

External, independent input

Bloomsbury works closely with Albion Strategic Consulting (Albion), which was engaged several years ago to provide independent third-party input and challenge to the IRC’s internal members, sitting as a guest member on it.  Albion provides ongoing research on investment matters including reviewing the latest evidence supporting or challenging our approach at the philosophical, asset allocation and fund levels.  Its inputs are reviewed and discussed in the meetings.

Less is more when it comes to investing

It takes fortitude and discipline to stay calm at times of market crisis, to remain invested and to rebalance the portfolio if necessary.

It takes fortitude and discipline not to chase ‘hot’ parts of the markets (bitcoin, gold, tech stocks etc.) or ‘hot’ managers, to restructure portfolios to take advantage of perceived short-term opportunities and challenges or to give up on certain parts of the diversified portfolio that happen to be suffering from relatively poor performance at any point in time.

It also takes fortitude and discipline to keep meeting with clients and to tell them again that, despite the fees they pay, their portfolio does not need changing (remembering that most of the fee relates to the financial planning work and advice they receive rather than the management of their portfolio).  We will never change a portfolio just to look busy but only when the change actually improves it.

The next time you open your latest portfolio valuation report, remember that despite the lack of activity on the surface, the IRC continues to paddle furiously behind the scenes to allow this to be the case.  In the immortal words of the investment legend and author Charles Ellis:

‘In investing, activity is almost always in surplus.’

Perhaps we should amend this slightly to:

‘In investing, activity is, except for within the IRC, almost always in surplus.’

 

This blog is intended for information purposes only and no action should be taken or refrained from being taken as a consequence without consulting a suitably qualified and regulated person.  Your capital is at risk when investing.  Past performance is not a reliable indicator of future results and forecasts are not a reliable indicator of future performance.

[1] Image prompt: ’A single mallard duck floating on perfectly calm water but with its feet paddling hard below the surface’, image generated by OpenAI’s GPT-4, 08/05/2024