The Four Pillars of Investing
In recent years, for many investors their portfolios have been based more around asset allocation and passive investment rather than active stock picking. So far, this method seems to be working well producing positive returns and minimising volatility. Mike Azlen, CEO at Frontier Capital Management tells us why.
Frontier Capital Management LLP is an independent, privately owned and entrepreneurial business established in 2004 to bring diversified and low-cost multi-asset and alternative investment solutions to the wider investment community. This approach was previously only available to ultra high net worth individuals and institutional investors.
At Frontier Capital, we believe that a long term, diversified investment solution should form the core of any portfolio. Our approach to investing is inspired by the large US University Endowment Funds such as Harvard and Yale who have been leaders in multi-asset investing, delivering superior risk-adjusted returns for over two decades.
Our philosophy is highly evidence-based, combining time-honoured research including Harry Markowitz’s Modern Portfolio Theory and James Tobin’s Capital Market Line with cutting edge thinking on indexing strategies and alternative investments. Turning theory into practice is achieved with the passion and experience of an exceptional team of people. The team at Frontier Capital has a significant amount of collective investment expertise and, in addition, draws up on the experience of key external industry figures that form our Asset Allocation Committee. Together, we seek to deliver superior investment performance with unparalleled levels of client service.
The Investment Philosophy that underpins the Investment Policy of our fund range is both intellectually rigorous and supported by a large amount of empirical and academic evidence. This philosophy is referred to by Frontier Capital as “The Four Pillars of Investing”:
1. Traditional and Alternative Asset Classes Generate Long Run Real Returns
Traditional and alternative asset classes will generate a return above inflation (real return) and cash (excess return) over the medium to long term (5 to 10 years). Alternative asset classes have embedded sources of excess return combined with attractive volatility and correlation properties
2. Strategic Asset Allocation Drives the Majority of Portfolio Return and Risk
The Strategic Asset Allocation of a portfolio will determine the vast majority of the portfolio’s return and risk. Market timing and tactical asset allocation activities are unlikely to add value over time and will increase cost and potentially increase portfolio risk through poor investment decisions.
3. Modern Portfolio Theory: Diversification Increases Risk-adjusted Returns
Diversification across multiple asset classes increases portfolio risk-adjusted return creating a more “efficient” portfolio. Leveraging or deleveraging an “efficient” portfolio is a superior method of changing the risk/return profile vs. altering the portfolio asset allocation.
4. Index Investing Outperforms the Majority of Actively Managed Investments
Index investing captures the return of an asset class at very low cost and outperforms the majority of active managers. Outperformance increases with time.
Frontier Capital’s range of multi asset and alternative investment funds encapsulates the best of over 100 years of investment theory and practice. Research and analysis drives innovation and by critically assessing our methods and investment strategies, we believe that Frontier’s funds will continue to represent the cutting edge of investment thought.
Each of Frontier Capital’s funds is supported by extensive ongoing research and expertise. Frontier Capital has developed proprietary methods of accessing asset class returns that keep costs and tracking error as low as possible and allow for greater control over your investment. Where relevant, Frontier Capital uses currency hedging to protect investments from exchange rate risk and secure the pure asset class returns. With all this in place, you can have peace of mind that Frontier Capital’s investment solutions will work hard for you.
A low cost approach to investing will always benefit the client in the long term. Frontier Capital’s ‘active indexing’ approach allows us to access individual asset classes at very low cost, with incremental cost savings passed on to our investors in the form of added performance. Strategic long term investors will understand the large benefit of even modest cost savings when compounded over many years.
If you would like to know Frontiers management style could fit into your existing portfolio, please contact us and we can show you how.