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28/07/2016

Staying focused in dynamic markets

As a wealth manager, Kleinwort Benson manages client portfolios across a wide range of asset classes. Our approach is built around a disciplined framework that aims to guide us through changing market conditions while growing client wealth in real terms.

Earlier this year, Kleinwort Benson’s investment team won the prestigious PAM award for ‘High Growth Portfolios’ based on the performance of our Global Equity strategy, a discretionary managed investment portfolio of direct equities. This strategy serves as a great example of how our framework is put to work in practice, taking on the challenges of investing in individual stocks.

Equities have historically offered attractive returns over the long term, but they can be very volatile over the short term, especially when looking at individual stocks. Investors need to navigate the idiosyncrasies of hundreds if not thousands of companies while potentially wading through endless amounts of financial reports, macroeconomic analysis and a 24-hour news flow. 

Faced with these challenges, investors need to apply a robust approach.

The plan

The objective of our equity portfolios is to consistently outperform the relevant equity market while exhibiting similar or lower levels of risk. To accomplish this, we adopt a disciplined stock selection process that focuses on identifying quality businesses selling at attractive prices; combined with a risk-weighted approach to forming a diversified portfolio.

When identifying quality businesses, we are essentially looking for genuinely profitable companies that have improving margins and strengthening balance sheets, while aiming to avoid those that overstate earnings or asset values through their engagement in accounting manipulation.  

A quality business, however, is not in itself necessarily a good investment opportunity; indeed, investors regularly run the risk of overpaying for quality assets. To mitigate the risk, we only invest in stocks selling at discounted prices relative to peers, and we use a company’s reported cash flows as the key indicator of value. Finally, we form a diversified portfolio selected from the stocks that meet both our quality and value criteria, but allocate a greater amount of capital to the stocks that demonstrate a lower level of risk[1]. Through this risk-weighting of the stocks, the returns tend to further outperform the market index, with the added benefit of intentionally reducing the volatility.

The performance

While we believe our approach is relatively straightforward and sensible, it is also supported by a wealth of evidence – from both distinguished academics[2] and practising investors – highlighting the potential for generating a strong investment performance.

And the performance so far has been strong. While the past 12 months have been challenging for equity investors, our strategies delivered excellent results, outperforming equity markets as a whole while demonstrating a lower variability of returns (i.e., risk). Our Global Equity strategy[3], in particular, returned 29.8% versus 14.0% for the benchmark FTSE All-World index (from June 2015 to June 2016).

Looking ahead, we aim to continue building on this positive track record by staying focused on our well-defined, repeatable investment process.

For more information about our award winning portfolio, please get in touch.

 

Sources: all figures taken from FTSE All-World Index Total Return, Kleinwort Benson and Bloomberg

Global Equity Portfolio Strategy figures are net of fees/expenses. FTSE All-World Index Total Return figures are all gross of fees/expenses.

 

[1] According to the historical volatility of each stock’s returns

[2] For example, see “Common Risk Factors in the Returns on Stocks and Bonds” (Fama & French, 1993)

[3] The Global Equity portfolio strategy was launched on 19 February 2015


Past performance is not a reliable indicator of future results. Investment values and the income from them can go down as well as up, and may be affected by changes in rates of exchange. An investor may not receive back the amount initially invested. 

This publication is a financial promotion. It has been approved and issued in the United Kingdom by Kleinwort Benson Bank Limited. Kleinwort Benson is the brand name of Kleinwort Benson Bank Limited. Kleinwort Benson is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority, reference number 119269 and is a member of the London Stock Exchange. Kleinwort Benson is a company incorporated in England and Wales with company number 2056420 and VAT number GB 629 2807 22. Registered Office 14 St. George Street London W1S 1FE. Telephone +44 (0) 20 3207 7000. Telephone calls may be recorded.

Disclaimer

Your eligible deposits with Kleinwort Benson Bank Limited are protected up to a total of £85,000 by the Financial Services Compensation Scheme, the UK's deposit guarantee scheme. Any deposits you hold above the limit are unlikely to be covered.

Please click here for further information or visit www.fscs.org.uk

Kleinwort Benson places all client deposits with a spread of approved counterparties including other parts of the Societe Generale Group (the “Group”). As such their financial standing is linked to that of the Group. Depositors should form their own view of the financial standing of the Group based upon publicly available information.

Kleinwort Benson is a participant in the Guernsey Banking Deposit Compensation Scheme (the ‘Scheme’). The Scheme offers protection for ‘qualifying deposits’ up to £50,000.00 subject to certain limitations. The maximum total amount of compensation is capped at £100,000,000.00 in any 5 year period. Full details are available on the Scheme’s website www.dcs.gg or on request. Please note deposits with Kleinwort Benson outside the UK are not covered by the UK FSCS.