Diversity is the low-hanging fruit in investing

We all get swept up with the marvels of the technical details and marketing campaigns of the investment industry. Money never sleeps, and so news reports are filled with details on the percentage moves in different indices and assets, and we’re bombarded by fund managers telling us why their fund is the best. At the end of the day, though, what matters to the ordinary investor is whether their investments will meet their expectations. This, of course, means healthy and consistent returns on their hard-earned money. 

It’s accepted wisdom that different investment strategies do different things and, depending on when you measure them, some are more successful than others. So, let’s take this thinking to the next level and say that every strategy is successful at some point. If we used every strategy available, would we be more successful in the long run? Probably yes, though it’s more likely to be with the right team who understand which approach is the right one, and who will deploy the strategy chosen in its correct context and timing.

This is the theory behind multi-strategy investing. It’s an investment approach that combines a wide array of different investment styles and strategies by deciding which strategy should be overweighted or underweighted at a particular time to improve the fund’s risk-adjusted returns. 

On a practical level, for example, many professional investors get asked if they favour the stability of established industrial stocks or the generous returns of tech stocks, whose profits come from the constantly emerging and rapidly changing possibilities of new technologies. I would say both are valid in their own ways.

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The main differences with a traditional approach are that a multi-strategy approach invests in a wider array of assets and strategies, and this approach isn’t tied to a particular philosophy or strategy. 

For example, we hear of investment managers with a growth style, or value style, or those who favour an active approach or a passive one. The multi-strategy approach uses all these and blends them in different ways, depending on the cycle in the markets, so investors get more consistent returns. 

Liberty’s multi-strategy approach is well suited to its goals-based approach to investing. Clients and financial advisers can focus on the questions that are important to achieving their financial plans and set the high-level objectives for meeting those goals. 

They can then leave the technical investment decisions to investment professionals, who take a broad view of market cycles and make investment management decisions. While risk and uncertainty are part of investing, this approach should also provide more consistency in returns to investors.

Our advice philosophy and product suite are set up to match this approach, leaving the technical details to professional investment managers. For clients who want a bit more choice, that’s also available, but without losing sight of the overall objectives and goals.

Your financial adviser will be able to bring you closer to what all this means for your own portfolio, but this kind of diversity will benefit both your long-term financial goals as well as your ability to earn consistently.  

Disclaimer:

This article does not constitute tax, legal, financial, regulatory, accounting, technical or other advice.  The material has been created for information purpose only and does not contain any personal recommendations. While every care has been taken in preparing this material, no member of Liberty gives any representation, warranty or undertaking and accepts no responsibility or liability as to the accuracy, or completeness, of the information presented. Please consult your financial adviser should you require advice of a financial nature and/or intermediary services. 

Liberty Group Ltd is a licensed insurer and an authorised financial services provider (no 2409).

About the author: Nishaan Desai is divisional executive of retail investment portfolio management at Liberty.

This article was paid for by Liberty.