A drive for capital growth is usually a component in virtually all the portfolios we manage, but this does not mean it need remain a dominant characteristic. For an investor wishing to move the emphasis from growth to a reduction in the volatility element inherent in financial markets, the All Weather Strategy is designed to create greater certainty of positive returns independent of market cycles.
Talking to a senior Executive in his late 50s, it became clear that the capital growth he had been happy to achieve in his portfolio needed a fresh approach. More than 5 years on, it was time to find a solution that fitted with his plans for retirement and created greater certainty in changing market conditions.
“It was clear from our discussions that this client was not ready to lose the growth he had already built up by turning to cash or fixed interest. Modest growth was still an element to be included in the mix, but by far the bigger priority was to reduce the equity risk from the main indices. Therefore, we had to find an investment solution that would address these objectives and smooth some of the bumps along the way” (Investment Manager at CS) .
The answer involved changing the portfolio mandate to an ‘All Weather‘ strategy which is designed to protect the real value of investors’ assets irrespective of the stage of the market cycle - so doing with lower volatility than of pure equity investing.
“With All Weather, we look at what we believe are the two fundamental drivers of markets - Growth and Inflation. The value of any investment is primarily determined by the volume of economic activity (growth) and levels of pricing (inflation). Surprises impact markets due to changes in one or both of these factors.” (Investment Analyst at CS).
Since the All Weather strategy was designed to evolve and flex depending on whether the rate of these two factors was increasing or decreasing, it helped reduce the volatility which the investor did not want - at the same time as allowing for modest capital growth.