James Penny, senior investment manager at TAM Asset Management discusses balancing risk with long-term investing.
'Asset allocation changes within 2018 have been very much a game of two halves.
Q1 saw portfolios tilting to a more risk on environment for 2018, with increases to the likes of emerging markets, Japan and US small and mid caps in line with the strong risk on sentiment coming from markets at the end of 2017.
Predictably, when you have such a consensus position in markets, investors will find something in the macro to take their foot off the pedal. Q2’s return to volatility brought with it a step change in the portfolios via an increase in defensive capabilities through uncorrelated, volatility targeting strategies to dial down the headline risks in the portfolio. The conundrum multi-asset managers face as we move into Q3 is trying to remain invested in risk assets for the mid to long-term, while building up the defensive positioning to protect the portfolio in the short term.
The mainstay of our investment DNA lies within active management, primarily, TAM’s strategic repositioning has been within active strategies over ETF’s.
In today’s markets, where we see both record high indices, with sharp spikes in volatility, it’s going to be active management that really earns its keep over just buying the broader market through a passive.
TAM has been increasing its defensive positioning through increases to the Investec Diversified Income fund (managed by John Stopford, pictured) as well as the Absolute Insight Equity Market Neutral fund. Additions have also been made to UK bricks and mortar funds, with Henderson and Standard Life.
While the asset class is not set to shoot the lights out, it is proving a valuable addition when it comes to decreasing the portfolio’s correlation to equity and debt markets.
Our MPS range
TAM’s MPS spans across four offerings. The flagship ‘Premier’ range remains at the core of the investment suite, supported by our more concentrated ‘focus’ offering designed for clients with smaller capital allocations, as well as investment offerings within ethical investing and Sharia investing.
Within each offering models are constructed on a risk-weighted basis from defensive to adventurous structures, depending on their allocation to equity markets. Assets under management for TAM’s UK MPS offering come in at just under £300 million.
TAM’s Premier Balanced strategy is one of the most popular options for clients who want a balanced level of risk within a well-constructed, active portfolio providing exposure to all parts of the market without having to over extend their capital to undue market risk.
TAM’s balanced model is constructed on the premise of a 50/50 split between equity and non-equity. Non-equity investments cover global debt markets, absolute return and market neutral strategies, as well as bricks and mortar and physical commodities.
Within the equity portion of the model, the investment team construct a diversified strategy of investments exposed to areas
of the global market where there is the greatest upside.
TAM’s balanced model offering has returned 4.23% annualised since 2008, with a focus on downside protection with the strategy outperforming down market months by over 80%. Annualised volatility within the model sits at half that of the FTSE All Share’s annualised volatility of around 12%.'