At Innate Wealth the three key principles on which our Investment Philosophy is built are:
Invest to a mandate
Markets are not perfectly efficient
But what does this actually mean for your financial goals?
1.1 We Invest to a mandate
At Innate Wealth we believe that financial success is best achieved by building solid relationships with our clients and getting to the heart of what matters most to them.
We spend the time needed to understand our client's financial goals, so we can draw up a plan which will guide our decision-making process as we work through your strategy.
Rest assured, at Innate Wealth we think about risk intelligently. The industry standard define investment risk as statistical measures but there is more to it than simply numbers.
From an investor’s perspective, the greatest risk, is the risk of NOT achieving one’s objectives.
In the same way that large pension funds invest with a specific liability purpose target, we see no difference for individual investors.
Liability driven investment management means that we are targeting a set of unique individual client objectives which support their overarching goal.
All of a sudden risk is no longer defined by a statistic, but by success for the client.
The focus needs to be on not having blow ups in the portfolio rather than trying to pick the next big winner. This is how one preserves capital.
Typically, risk is assessed in Financial Services by standardised questionnaires, but we like to dig a little deeper at Innate Wealth.
Like we said earlier, we believe that the only way to manage risk is to truly understand the client's objectives.
Are we investing for income, for growth, to protect ourselves against inflation, for legacy purposes, estate management, for philanthropic reasons, for unique short-term objectives?
By spending the time to work with our clients and get to the heart of these questions, we can define what the investment mandate is and how we view risk.
1.2 Markets are not perfectly efficient
We believe markets are not perfectly efficient and as such there are opportunities to add value in active management, however there must also be recognition of the value of passive investing where warranted.
By combining both passive and active management we are able to keep total portfolio cost at levels that deliver value to investors. As fees can significantly impact your portfolio over time it is important that we are cost conscious when implementing portfolios, by continually asking whether we are getting bang for our buck from our investment.
Whilst no one knows for certain what investment markets will do, we can control the controllable. We know the compounding effect of money is powerful, so we take advantage of it. We know that using the appropriate tax structure can have a significant effect on portfolio performance, so we also take advantage of this.
The great debate - Are markets efficient?
In 2013 the Nobel Prize for Economic Sciences awarded three recipients the prestigious prize, two of which actually had opposite views about the efficiency of markets.
Eugene Fama of the University of Chicago believed that economics revolves around efficient markets - which is the degree to which market prices reflect all available information- yet his counterpart from Yale University, Robert Shiller argued that that efficient markets have a much lesser relevance to the outcomes of the market.
We could infer that the Nobel Prize Economics Science committee are simply fence sitting and hedging their bets, but we don't operate like that at Innate Wealth.
We get on the front foot and identify inefficient markets and manage your assets to make sure your portfolio benefits from the changing market conditions.
But let's not discount the impact of Behavioural Finance.
It is no secret that an investors' psychology will influence rational behaviour when it comes to investment markets. We know that investors have limits to their self-control and are influenced by their own biases. We are here to keep you focused and disciplined to ensure that decisions are made with a clearly defined process and not based on all of the noise in the marketplace.
1.3 Diversification works
This is a situation where a literary great has given us finance people some inspiration.
Writer Mark Twain had a theory that put simply says: “put all your eggs in one basket and watch that basket."
That is how we operate At Innate Wealth: we use a stealth like gaze to watch your portfolio.
This brings us how we use diversification to improve the outcomes of your investments.
Diversification is a risk management strategy that mixes a wide variety of investments within a portfolio, and it's been proven that diversification in portfolios can give superior outcomes for investors, from a risk adjusted return perspective.
When constructing portfolios, we look to diversify in the following areas; asset class, stock, manager style, geography, demography and currency.
The very essence of diversification lies in the term correlation.
Put simply correlation is the measurement of how the returns of two investments move together.
By constructing portfolios with assets that have low correlations you are essentially aiming at achieving greater returns whilst taking on the same level of risk or the same returns with less risk.
It can be argued that during very difficult times in the financial markets, where the situation seems to be imploding, correlations generally rise, putting all asset classes in distress.
Whilst we have seen this play out, we have also noted, while highly correlated, the asset classes are not perfectly correlated offering a form of defence in such testing times.
This means the market fluctuations don't impact their long term returns, resulting in a far better outcome for investors.
By not limiting our universe of investment opportunities, Innate Wealth we can seamlessly manage portfolios, minimise risk and keep a stealth like focus on your basket.