Core & Satellite Investment Philosophy
At Imperium Capital Ltd., the investment process begins with an in-depth Confidential Client Profile (fact find.) Whilst the actual depth of the client-consultant discussion will vary depending on client needs, the structure of the meeting includes an Investment Risk Questionnaire, which seeks to cover three vital areas of performance management:
- Investor Experience Level
- Inexperienced Investor
You have invested in a limited range of asset classes for a period of less than four years and/or have stated that you investment knowledge is low or poor. However, you do understand that prices of securities may go up as well as down.
- Experienced Investor
You have invested in various asset classes for a period of more than four years and have experienced volatility. You have stated that your investment knowledge is good or higher and acknowledge investment risk.
- Professional Investor
You frequently trade various asset classes each year for more than four years. As an individual you have in excess of US$1.1 million of ‘investible’ assets and have extensive investment knowledge.
- Inexperienced Investor
- Investor Attitude To Risk (Tolerance To Loss)
- Strategic Vs Tactical Investment Preferences
Discussion Points :
- Investor Experience And Knowledge
- Risk Tolerance
- Agreed Risk Profile
Imperium Capital Ltd. has “evolved” the concept of Asset Allocation to reflect the differentiation of Strategic versus Tactical model making and risk profiles.
We believe that by utilizing these concepts we will be able to provide asset allocation solutions that improve our ability to manage our clients’ expectations.
Strategic: “Art of planning and directing longer operations and movements” Oxford Dictionary.
Tactical: “Done in immediate Support … Procedure Calculated to gain some end” Oxford Dictionary.
Imperium Capital Ltd. has taken these definitions to mean that a Strategic Asset Allocation is one that is set for a longer period of time while a Tactical Allocation is used to take advantage of shorter-term movements in the financial markets.
Technical allocations will normally be blended with the Strategic asset allocations and will only be available via qualified Wealth Managers.
Taking into account these views, we have created the following asset allocations/risk profile
Core and Satellite Investment
The discussion on strategy versus tactics leads to an explanation on “Core and Satellite”. The “Core” element refers to the idea of using professionally managed risk adjusted portfolios or “models” designed to manage performance over rolling three-year periods around both “risk” and “performance” benchmarks.
Consultants sometimes talk about “models and matrices” where “matrices” are applied to a selection of funds for regular premium investors and “models” relate to the professionally managed risk adjusted portfolios suited to capital sums. Our philosophy recommends that the more inexperienced the investor, the greater the “Weighting” towards models and core funds in order to increase the reliance on professionally managed multi-asset managers. For other “strategic” investors the recommendation is to start re-balancing with around 70% to 80% of the portfolio in “core funds ” and 20% to 30% in satellite funds.
Core-Satellite and Multi-Asset Manager
Our approach to providing effective investment strategies for its clients leans heavily on a “Core-Satellite” philosophy. Having established an investor’s attitude to risk (e.g cautious, balanced, growth or high growth),the problem of selecting appropriate funds, whilst still allowing the investor to add his own personal input, is relatively easy using this approach.
We usually suggest that 60% to 100% of an investment is allocated to core multi-asset funds. If the client is a USD growth investor for example, then we recommend that a minimum of 60% be allocated to a USD growth oriented multi-asset fund. Various studies have shown that the most important thing to get right in a portfolio is the asset allocation. (According to Professor Brinson, a pioneer in the development of the theory, asset allocation accounts for 90% of the variability in an investment portfolio.) In 2011, for example, it was more important to be in government bonds than it was to be invested in the best Asian equity fund or any UK or USA equity fund. But it is difficult for the average investor to get this asset allocation right and, in particular, to take advantage of short-term investment opportunities. A multi-asset manager can do this. He can make changes to the asset allocation on a daily basis as he feels necessary.
We are using only multi asset funds within the “core” component of an investment portfolio. Our choice of fund manager is Momentum Global Investment Management (MGIM) as their Harmony range of funds (www.harmonyportfolios.com)
Specifically, Momentum Offer:
- The ability to manage portfolios efficiently using significant skill in mixing tactical short-term decisions with strategic medium/long-term objectives.
- Considerable support from research departments.
- The Manager select from any asset class, within the parameters of the fund brief, to achieve their goals. They are therefore benchmarked towards “absolute” goals and not aligned directly to relative market indices.