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Navigating economic uncertainty: Dan Farmer CIO
September 2024
Dan Farmer, Chief Investment Officer, shares his insight into our approach to intelligent investing.
Opinion piece by Dan Farmer, Chief Investment Officer
In today's financial landscape, marked by shifting economies and uncertain markets, the role of a financial services organisation extends far beyond merely tracking trends and reacting to market volatility. Instead, it necessitates a steadfast commitment to time proven principles that guide investment strategies through all seasons.
As we navigate economic uncertainty, it's crucial to anchor our approach in a philosophy that considers market fluctuations and capitalises on long term opportunities regardless of the prevailing conditions.
Here, we delve into five foundational principles that form the bedrock of our investment philosophy, shaping how we think about investing in a world of constant change
#1 Cultivating a culture of excellence
At the heart of our investment philosophy is the belief that a great culture is fundamental to smart investing. A culture characterised by open debate, fearless inquiry, humility, trust, and collaboration lays a platform for generating the best investment ideas and strategies.
We embrace diversity of thought, recognising that innovation flourishes in an environment where ideas are challenged and refined, and that continual evolution and improvement in how we make decisions helps ensure our approach remains effective into the future.
By avoiding investment rigidity and hierarchical structures, we search widely for the best ideas, and ensure these find their way into our portfolios. Embracing change and new paradigms, we remain agile in our approach, ready to adapt to evolving market dynamics
#2 Navigating market inefficiencies
Contrary to the notion of perfect market efficiency, we acknowledge the presence of psychological and behavioural elements that influence asset prices, leading to deviations from intrinsic value. This recognition underscores the importance of active management in seizing opportunities and delivering superior long-term returns.
While we acknowledge the valuable role passive investing can play in diversified portfolios, we believe in the unique value proposition offered by skilful active management.
By incorporating high-quality private market assets with distinct valuation cycles, we enhance portfolio diversification and unlock new avenues for value creation without unduly increasing volatility.
#3 Mastering the art of diversification
Skilful diversification lies at the heart of delivering strong long-term returns while managing risk effectively. By constructing multi-manager portfolios comprising a diverse array of asset classes, investment styles, and geographic exposures, we give our investors the best chance of achieving robust, long-term, high performance.
Our commitment to active management, complemented by external expertise, ensures a constant flow of diverse ideas, guarding against groupthink and enhancing decision-making resilience.
#4 Embracing intelligent risk-taking
While acknowledging the necessity of risk in achieving return objectives, we advocate for intelligent risk-taking guided by proprietary insights and a keen awareness of environmental, social, and governance (ESG) factors.
Intelligent risk-taking is essential for achieving return objectives, but not all risks are created equal. By discerning between risks which we hold high conviction and are compensated by strong expected returns, and those that pose undue exposure which will not be rewarded, we position portfolios to capitalise on opportunities while safeguarding against potential pitfalls.
Our role as active managers is to carefully assess market dynamics and position portfolios to capitalise on opportunities with favourable risk-return profiles. Moreover, we believe that the integration of environmental, social, and governance (ESG) factors is integral to active management, as companies with robust ESG practices are better positioned for long-term financial sustainability.
#5 Balancing long-term vision with tactical agility
While we maintain a steadfast focus on long-term objectives, we remain vigilant to market events that could pose significant threats to portfolio stability or present attractive investment opportunities.
Our experience navigating multiple market cycles has equipped us with the temperament and discipline to withstand short-term volatility while remaining proactive in managing downside risks, safeguarding our clients' capital and preserving wealth accumulated over years of careful investing.
By aligning structures and incentives to reward patience and perseverance, we strike a delicate balance between capital preservation and strategic opportunism.
Our approach to navigating economic uncertainty must transcend reactive measures and instead embrace a holistic philosophy rooted in enduring principles.
By fostering a culture of excellence, harnessing market inefficiencies, remaining true to the principle of deep portfolio diversification, embracing intelligent risk-taking, and balancing long-term vision with tactical agility, we position ourselves not merely as passive observers of market dynamics but as proactive navigators of our clients’ financial future.
The information in this article is current as at August 2024 and may be subject to change.
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