Global Perspective: Every country's economy is at different stages in the economic cycle of bust and boom. In order to reduce over dependence on any one area, to reduce volatility, and to reduce risk of loss to our client portfolio we adopt a global perspective.
A Global Diversified Portfolio reduces risk by averaging the returns gained throughout each region of the world to your Investment Portfolio 1988 - 2008
Data sourced internally at Dimensional Fund Advisors from Dimensional's Returns Program 2.0.
This material has been distributed by Dimensional Fund Advisors Ltd which is authorised and regulated by the Financial Services Authority.
This is an example of a balanced portfolio
The value of investments and any income from them may go down as well as up
Past performance is no guarantee of future results.
Adoption of Institutional Style Portfolios: This style produces better returns to the client by producing greater consistency of investment returns over time. Institutions are leaders in investment returns with the average Ten-Year Annual Return for Institutions being 10.8%, whereas the average Equity Retail Client return was only 6.2% (source Mercer Investment Consulting 2005). As indicated above, the institutional approach has produced a significant difference and clearly demonstrates the potential for greater Wealth Creation that can be ascribed to two main drivers of increased performance:
a. Low portfolio turnover of underlying assets - assets are held long-term in the portfolio meaning stocks & shares, fixed interest (Bonds) etc are traded far less which reduces transaction cost to the client.
b. Appropriate asset allocation combined with a global perspective reduces risk and volatility to the client portfolio.
Why do we adopt a Core Strategy of Passive Investing
There are two investment approaches for a client to consider investing in, either 'Active or Passive.' Both approaches to investing have their merits. It is generally accepted passive investing offers lower cost investing with less volatility, which explains why the majority of Institutional portfolios embrace a Core Strategy of Passive Investing.
Michael Jensen (1968) Journal of Finance (May 1968), now of the Harvard Business School was the first to conduct a landmark study of professional fund managers when he analysed the performance of all US funds from 1945 to 1964. He documented that active fund managers were unable to outperform the market in any statistically meaningful way. There have been a multitude of studies since reaching the same general conclusion. Increasingly, this approach of 'Active' fund management has been shown to be deficient. This is not just evidenced via your own probable personal experience; but is also validated by empirical evidence and practicing fund managers. Daniel Kahneman (1968), Nobel Laureate in Economics, commenting on the active management approach stated, "So investors shouldn't delude themselves about beating the market? They're just not going to do it. It's just not going to happen." Found in, Investors Can't Beat the Market, Jan 2, 2002.
It is because of this growing body of evidence that we adopt a Core Strategy around (passive/index management). William F. Sharpe (1990), Nobel Laureate in Economics, 1990 commenting in Business Week and The Parable of Money Managers, stated "Most of my investments are in equity index funds (passive)." Passive investing like active investing provides diversification via UK, Europe, International, and Emerging Market exposure.
Warren Buffett (1996) writing to his shareholders stated, "...the best way to own common stocks is through an index fund..." (Berkshire Hathaway, Inc. 1996 Shareholder Letter). Again Warren Buffett (2007) stated, "...the active investors will have their returns diminished by a far greater percentage than will their inactive brethren. That means that the passive group - the "know-nothings" - must win" (Berkshire Hathaway, Inc. Shareholder Letter 2007).
Our investment philosophy embraces academic and practitioner experience over decades of empirical research that bear out the above conclusions that the passive group over the long-term must win out over their active investors.
Disadvantages
However, despite the distinct advantages to the investor holding their core portfolio in passive investments, this approach in itself does not on occasion meet all of the investor's objectives.
When this proves to be the case we adopt an Active investment philosophy based on a satellite approach. An active investment strategy is when the fund manager seeks to outperform the market over a specified time period. This approach is recognised as being less reliable with much evidence stacked against it.
There is also evidence that supports this approach on occasion. For example, Anthony Bolton (UK) of Fidelity Special Situation fund and Peter Lynch (USA) of Fidelity Magellan fund out-performed the market in their tenure. Fortify Investments Ltd holds to the view that there are inefficiencies in Emerging Markets. Therefore, we are happy to embrace active management in inefficient markets because we believe experienced active fund managers can extract additional profit on and beyond the higher trading cost over the short-term for our clients.
Summary
Our Investment philosophy is characterised by a commitment to long-term passive investing complemented
by active investing where our core passive investment is deficient.
We are committed to reducing trading cost to our client while reducing volatility to their portfolio by utilising core
investment styles that is tilted to Value Cap and Small Cap exposure augmented by Large Cap exposure.
By blending our Core (Passive), Satellite (Active) and Style (Value, Small and Large cap) we effectively combine the
best of all worlds in order to seek out sound investment opportunities on behalf of our clients.
Should this approach be in keeping with your own expectations of what you want from your investments please contact us by ringing 01664 474513 and speaking to Richard Pearse, Managing Director, richard@fortifyinvestments.co.uk
Long-Term Perspective: It offers better protection to our client wealth and their aspirations of creating wealth over time.
Investing over the Long-term offers better protection to your Wealth
By Adopting a Long-Term Perspective the Risk of Stock Market Loss Over Time Reduces (1970-2008)
All values are represented in GBP. Past performance is no guarantee of future results. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2009 Morningstar, Inc. All rights reserved. 4/1/2009
The value of investments and any income from them may go down as well as up
Past performance is no guarantee of future results.
Client Wealth Creation: Client Wealth Creation: Is achieved by tilting client portfolios to 'VALUE CAP' (out of favour undervalued companies in comparison to the market) and SMALL CAP' (companies that represent greater potential growth opportunities). These company investments have historically outperformed 'LARGE CAP' (Blue Chip) companies.
By investing in both 'Value Cap & Small Cap' it has historically produced Greater Wealth.
For the fifty-two years from 1956 to 2008, the compound annual growth rate of return was 15.61% for the Value Index, 15.02% for the Small Cap Index, 11.76% for the Large Cap Index, 7.74% for T-Bills, and 5.70% for Inflation (RPI).
Value Index: 1955-December 1993: data provided by the London Business School; 1994-present simulated by Dimensional from Bloomberg securities data. Small Cap Index: 1970-June 1981: Hoare Govett Smaller Companies Index; July 1981-December 1993 simulated by Dimensional from StyleResearch securities data; 1994-present simulated by Dimensional from Bloomberg securities data. Large Cap Index is the FTSE All-Share Index published with the permission of FTSE. T-Bills: 1955-1974, UK Three-Month T-Bills provided by the London Share Price Database; 1975-present, UK
One-Month T-Bills provided by the Financial Times inflation is the UK Retail Price Index provided by the Office for National Statistics.
This material has been distributed by the Dimensional Fund Advisors Ltd which is authorised and regulated by the Financial Services Authority. Past performance isn't a guarantee of future results.
The value of investments and any income from them may go down as well as up.
Past performance is no guarantee of future results.
Reduced Risk and Volatility: 'Large Cap' (Blue Chip) companies tend to pay out rising dividends over time and tend to be less volatile investments to hold. Risk and volatility is further reduced by allocating fixed interest (Bonds) to the portfolio.
Volatility is further reduced by allocating fixed interest (Bonds) to the Portfolio
Stocks and Bonds: Risk Versus Return 1970-2008 payments and less volatility in investment returns
All values are represented in GBP. Past performance is no guarantee of future results. Risk and return are measured by standard deviation and arithmetic mean, respectively. Risk and return are based on annual data over the period 1970-2008. This is for illustrative purposes only and not indicative of any investment. An investment cannot be made directly in an index. © 2009 Morningstar, Inc. All rights reserved. 4/1/2009
The value of investments and any income from them may go down as well as up.
Past performance is no guarantee of future results.
Emerging Market Opportunities: Is best captured by adopting a 'SATELLITE STRATEGY' of holding Active Investments where the Core Strategy is lacking.
Why Emerging Markets?
Superior Equity Performance: Emerging market equities have outpaced their developed market peers both since the launch of the MSCI Emerging Markets Index in 1987 and over the past ten years, during which they have outperformed by an impressive 166%*.
Similar volatility, higher returns: Investment in emerging markets is often viewed as 'more risky' than developed markets. Over the past ten years, however, a blended portfolio of emerging markets and developed markets exposure would have demonstrated a similar level of volatility, but providing far superior returns.
Declining volatility
Volatility within emerging markets has actually been trending lower for years, and has consistently remained within a narrower range than both the FTSE All Share and S&P 500 indices. In the recent crisis, emerging markets volatility peaked at a lower level than developed markets volatility. Subsequently, it has dissipated more quickly.
Favourable demographics: Emerging markets represent approximately 75% of the world's land mass and house more than 80% of the global population leading to.
A mass and growing internal market for consumption and increasing economic national output for export of
goods and services above that of the developed world
They are cash surplus as against debt ridden
Rich in natural resources including more than 90% of oil and gas reserves, 70% of coal reserves and 60% of
copper, nickel, iron ore and bauxite reserves world-wide *.
Fortify Investments Ltd believes that Emerging markets will become the leading markets in the years to come and our portfolios reflect this strongly held belief.
*Source World Bank 2009
Reduced Cost: By adopting a 'CORE STRATEGY' of holding Passive Investments we reduce client cost by up to 70%. This approach further increases client wealth creation because more of the investment returns remain with the client.
Fees Matter
The advantage of using Passive Investments, is reduced management fees, can increase client wealth displayed over both graphs
William F. Sharpe, "The Arithmetic of Active Management," Financial Analysts Journal 47, no. 1 (January/February 1991): 7-9.
Data source: Lipper UK Fund Charges, January 2009; Dimensional OEIC TERs per Report and Accounts, December 2008, audited;
Dimensional UCIT TERs per Report and Accounts, November 2008, audited.
This material has been distributed by Dimensional Fund Advisors Ltd which is authorised and regulated by the Financial Services Authority.
Past performance is no guarantee of future results.
Equity Fund Expenses
'After costs, the return on the average actively managed dollar will be less than the return on the average passively managed dollar for any time period.' William F. Sharpe, 1990 Nobel Laureate
Over Long-term periods, high management fees and related expenses can be a significant drag on wealth creation.
Passive investments generally maintain lower fees than the average actively managed investment by minimising
trading costs and eliminating the costs of researching stocks.
For illustrative purposes only.
