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Multi-asset investing

Brompton has a range of multi-asset funds that embody the dynamic asset allocation approach of our investment team headed by Gill Lakin, our chief investment officer. The range of funds is designed to suit the diverse needs of private investors factoring in their appetite for risk. Gill and her team also deploy their disciplined investment approach in providing asset allocation and fund selection services for model portfolios and risk-graded investment strategies and manage collective investments tailored to the needs of specific client groups. Please click on the various tabs below to discover more.

Dynamic asset allocation

Dynamic asset allocation is at the heart of the Brompton multi-asset investment process because we believe this will be the principal driver of returns for our fund investors. Three major bear markets since 2000 have made investors aware of the importance of choosing an asset manager focused on determining if the environment is one in which investors will be rewarded for taking risk rather than simply seeking to deliver a relative return.

Our dynamic asset allocation approach gives us the flexibility to invest globally on behalf of our fund investors in all major asset classes. It is the principal means by which we aim to add value. Our objective is to select the right asset classes, geographical areas and investment themes at the correct time in the investment and economic cycle. This is a demanding task and we have developed our asset allocation process in response to this challenge.

First, we use the information conveyed by economic data releases to build up a picture of the outlook for the global economy. Secondly, the message conveyed by the data is combined with our knowledge and investment experience to determine which investments we believe are likely to perform well in the prevailing economic conditions. Thirdly, we analyse the valuation case for these assets to identify the genuine investment opportunities.

We recognise the importance of building fund portfolios that are not wholly dependent for their success on a narrow range of investment outcomes. We, therefore, combine the assets in our funds to offer a measure of protection under a range of different scenarios. Careful consideration is also given to the implementation of our investment decisions and we use momentum and sentiment indicators to help refine our timing.

We use information from many sources, not just macro-economic data releases, in coming to our views. We invest in economic research produced by selected economists and strategists to improve our decision making. Our investment process involves frequent meetings with specialist managers investing across the spectrum of different asset classes and regions and we also draw on their observations and experience when reviewing our strategy.

We focus on our strengths and only invest in high-conviction ideas, seeking to avoid consensus thinking. Our consistent emphasis on forward-looking data and our strong valuation discipline often lead us to consider out-of-favour assets and help us as we aim to avoid over-hyped markets and investment bubbles.

A proper respect for investment risk

Diversification is one of the most powerful concepts in asset management, allowing managers to reduce risk through investment in a range of different assets. We seek to manage the risk in our fund portfolios by diversifying across a number of different asset classes, geographic regions, currencies and investment themes. The portfolio construction process is designed to ensure that performance is not narrowly dependent on one central outcome, with all investments likely to move together. We consider how our fund portfolios will be affected by a wide range of different outcomes. Our range of multi-asset funds allows investors to select the level of risk risk they are willing, and judge themselves able, to accept in seeking to achieve their investment objectives.

Investing in funds allows us to diversify risk at the individual security or underlying asset level. In a typical Brompton multi-asset fund portfolio of 15-20 funds, each fund will hold a broad range of underlying investments. This means that when these funds are combined in a Brompton multi-asset portfolio the contribution to risk from any one individual security is small and the principal driver of performance will be the overall asset allocation strategy, which we aim to enhance through our fund selection process.

We analyse the level of risk at every stage in the process of portfolio construction, including the volatility of the underlying funds in which we invest as well as the level of risk inherent in our multi-asset fund strategies. We utilise specialist risk analysis software to help us quantify and manage risk but we never surrender our common sense. Many risk assessment models rely too much on the historic relationships between assets and can sometimes underestimate the real level of risk. In particular, they do not work well in times of market stress when the correlations between asset classes can rise.

We do not stand behind a faceless investment committee when accounting for the decisions we make within our multi-asset funds. Responsibility for investment strategy ultimately rests with our chief investment officer, who is fully accountable both internally and to our clients.

A fund-of-funds approach to investing

Our fund selection process identifies specialist managers in our preferred asset classes, regions and sectors. We invest in funds managed by external managers because we believe this approach will lead to outperformance. Each multi-asset portfolio typically invests in a focused portfolio of 15-20 funds. Some funds in which we invest are managed by established industry names; others are from emerging boutiques with expertise in key areas.

Once we have decided to invest in a particular asset class, we choose that which we consider to be the best fund in that sector to meet our objectives. We do not think it is credible for one single investment house to claim a monopoly over investment talent and excel in all areas. Our fund selection process has been developed with the aim of identifying the most talented managers wherever they might be. We do not invest in other Brompton products.

We use our scale and buying power with the aim of gaining access to some of the most successful managers and securing favourable terms. We have a transparent fee structure and we do not profit from transaction fees. We do not retain commissions or rebates that may be generated within our investment funds.

We take an active approach to fund selection, preferring to invest with independent-minded managers rather than adopting an indexed or passive style of management. We have a preference for managers who show genuine commitment, either by investing in their own OEICs and unit trusts or through equity ownership, but above all our approach to fund selection is pragmatic. We will, however, consider all available investment vehicles when determining how best to gain exposure to a particular asset class. Thus, We may therefore invest in funds that mirror a particular benchmark or index if we cannot identify an actively-managed fund with the potential to meet our clients’ needs consistently and we decide that a passive investment is the most effective means of gaining the exposure we seek. Where we invest in funds of this nature such as exchange-traded funds, we will only do so if the investments are backed by the underlying assets. We may also sometimes invest in investment trusts.

Our fund selection process sifts through an investment universe of more than 30,000 funds looking for successful managers. We seek to identify managers who have not just delivered good returns but who can demonstrate consistency and have justified the level of risk they have taken. We use quantitative tools to help in the early stages of manager selection but the final decision is a subjective one. Once we have invested in a fund we continue to monitor it closely and meet the manager regularly.

Portfolio construction

The output from our investment process is used to populate investment funds that aim to deliver outstanding performance for our investors while also catering for their diverse attitudes towards risk. Our 13 funds have clearly differentiated investment objectives and sit within five of the principal Investment Association sectors, IA Mixed Investment 0-35% Shares, IA Mixed Investment 20-60% Shares, IA Mixed Investment 40-85% Shares, IA Global and IA Flexible Investment. All our funds are eligible for inclusion in an ISA. Each portfolio is dynamic and changes as our investment thinking evolves. Our investment committee meets quarterly on a formal basis to review the performance and investment risk management of our strategies.

Security of assets

Brompton provides discretionary investment services for mutual funds but does not take custody of investors’ assets. This segregation of responsibilities is important to many investors.