Our short term culture is at odds with the fundamentals of sound investing, where instant returns are always too good to be true and the long term view is often the most effective. John Husselbee of Liontrust, manager of the FP Verbatim risk managed funds, lifts the lid on how he approaches the challenge of patient investing in an impatient world.
1. It’s not about active vs passive, but cost versus time
If time is short then tracking an asset allocation in the lowest cost, most efficient manner may well be the best bet, but over the longer term there are undoubtedly opportunities to outperform. Blending active and passive positions is part of the skill of portfolio construction.
2. Today’s winners might not be tomorrow’s
The pattern of inflows into retail funds continues to demonstrate that consumers buy high and sell low and buy funds that have had short term strong performance. Leicester City won last year’s Premier League title, but their record over 10 years does not stack up against the 6 or 7 teams who have consistently been at the top of the league. Finding successful active positions should not be about short term, potentially lucky wins, but proven, measured performance based on sound logic.
3. Style is Substance
Whilst asset allocation is the bedrock of successful returns within each market sector, there is the choice between large cap and small cap, value or growth. A successful portfolio will maximise returns from a given sector by understanding the style of investment in underlying funds.
1. Passive can provide adequate short term market returns
2. Active potentially provides greater returns over the long term
3. Impatient investment can damage a long term investment process
4. Be patient - certainty in investment is found in the long term
John’s approach is simple. It’s about winning by not losing, and it is more tortoise than hare. These principles are designed to reward patience and avoid the trends and temptations of the impatient world we live in.