How is your portfolio really performing?

Portfolio Performance

You’ll be familiar with the story of David versus Goliath. The young shepherd boy, David armed with only a simple slingshot, takes on the mighty giant, Goliath and emerges from their battle, victorious.

When I sit down with my colleagues in our regular Investment Committee meetings and review how our client portfolios are performing in comparison with our competitors I’m often reminded of that story.

We launched our investment portfolios in February 2011 in the aftermath of the Global Financial Crisis. That particular crisis began in 2007 with problems in the US housing market which then uncovered huge risks that investment banks had been taking through complex financial products and led to one of the world’s largest investment banks Lehman Brothers going bankrupt.

At its lowest point, the stock market (using the S&P as a proxy) fell by 50% and the bear market lasted 17 months, only beginning the recovery in March 2009.

As a result of this experience, the senior team at Capital embarked upon a project to research and analyse the optimum way to invest our clients’ money through all investment cycles. We wanted to build an all-weather strategy that would deliver strong growth in the good times, but protect client money when things got rough.

We brought in external specialists and analysed the empirical research available from leading academic institutions such as the Chicago School of Finance, Oxford University, and the London School of Economics.

The project was a huge undertaking and lasted over a year. We finally launched our investment models in February 2011. It was and remains a robust strategy, based on Nobel Prize-winning theory and backed by rigorous academic evidence. 

As a result, we call it Intelligent Investing™

That’s the background and the theory but the big question we have always asked ourselves is ‘does it work in practice?’ There are lots of investment managers out there all doing what they think is right and taking action on behalf of their investors every day.

One of the agenda items at every Investment Committee meeting is ‘how are we doing against the leading investment and wealth managers? To put it another way ‘where’s the proof in the investment pudding?’

It’s always been a source of reassurance and pride to know that every time we have asked the question, the answer is the same – we’re doing very well. 

One of the benchmarks we use is Asset Risk Consultants (ARC) which is an independent firm of research analysts. ARC measures the real-life investment portfolio returns of all the leading wealth managers in the UK, most of whom are large companies, well-known and in some cases, household names.

So, what does the data tell us?

If you were invested in our most popular portfolio, the one used by most clients, (CAM 60), you would have enjoyed a return of 95% since launch. The comparable return from the average of all the best investment advisers in the UK is 46%. 

CAM60 Portfolio 2011 to 2022
CAM 60 vs ARC Balanced Asset (Feb 2011 – Sep 2022)

For context, this means £100,000 invested in our portfolio would now be worth approximately £195,000 and on the average of our competitors, £146,000.

In the competitive world of investing where there are marginal advantages, that is a significant and meaningful difference.

Bringing it up to recent times and the volatile last 12 months, if you’re invested in CAM 60, you’ve experienced a temporary fall in value of -8.8%. However, if you were invested in the equivalent with a competitor, the figure would be -12.4%. Over a short period of 12 months, this is significant. 

To give you some context, the global stock market (MSCI) is down 26.9% over the same period.

CAM60 Portfolio 2021 to 2022
CAM 60 vs ARC Balanced Asset (Sep 2021 – Sep 2022)

The data, therefore, confirms that Intelligent Investing™ has delivered strong returns during growth markets, but also offers greater defensive qualities when the markets go through a period of volatility.

Occasionally clients will ask how a boutique firm such as Capital can outperform the might and resources of the biggest banks and investment institutions in the country. The answer is quite simple; we don’t do anything particularly clever, but we avoid doing things that we believe to be dumb!

We make no short-term tactical predictions, we avoid regular buying and selling, trading in and out of markets, and we have a relentless focus on keeping costs low. 

Like David, we use simple but effective tools to ensure that we win for our clients year in, and year out.

That’s why we call it Intelligent Investing™.

Skill is successfully walking a tightrope over Niagara Falls. Intelligence is not trying.

To learn more, click here to watch a video of me explaining our process in more detail.

Graham McCulley
Investment Director 

Risk Warning:
This article is distributed for educational purposes and should not be considered investment advice. Past performance does not guarantee future results.

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