We’re often asked how we look after your investments during a time of market volatility. The key is having a rigorous, disciplined investment process underpinned by proven investment principles.
We take an ‘active management’ approach to investing. This means using our experience, research capabilities and connections to select and manage investments on your behalf. We believe this gives you some protection when markets fall, but also allows you to take advantage of subsequent upswings in markets. Our approach is built on three key principles – quality, liquidity and diversification.
We consider these three principles in every aspect of our decision-making, including when we decide which asset classes to invest in, when selecting individual investments for the portfolios we manage directly, and when choosing a third-party investment manager to work with.
Here’s why we believe these factors are important.
Quality: Holding high quality investment assets means you should be better able to absorb any volatility in the prices of those investments. In tough market conditions, high quality investment assets tend to hold their value better than low quality assets. Low quality assets tend to be more volatile, meaning investors who hold them are likely to be in for a roller-coaster ride. Something else to note is the prices of higher quality assets tend to bounce back more quickly as markets recover.
Liquidity: When we talk about liquidity, we usually refer to how quickly we can buy or sell investments. Investing in highly liquid investments means we can divest quickly if we need to, or if our view on a company or an asset class changes. Investing in illiquid investments means there’s a chance we may not be able to ‘get out’ of an investment, and investors could be forced to hold onto it if the price of that investment continues to fall.
Diversification: Holding many different investments helps to smooth out the returns for our clients. Importantly, it means that if the price of one investment falls in value, its weaker performance can be absorbed by other better-performing investments elsewhere in their portfolio. Diversification ensures our clients have a spread of different types of investments, such as a combination of bonds, shares and property, and it also gives them exposure to different industries and geographic regions.
While investors may not have had the full benefit of diversification this year – with both equity and bond markets falling at the same time – they have benefitted from our international listed property and international listed infrastructure holdings – both of which have held up well, as these tend to perform better in high inflation environments.