The current challenge for all investors is how to grow real purchasing power, from a starting point of high valuations and below average prospective returns. Accepting market performance over the next decade, even from the most clearly articulated of investment processes (where there is such a thing) may not cut it and if so could leave fi nancial plans failing to meet their objectives.

Our sense is that the partnership between market and portfolio manager is going to require the latter to do more of the heavy lifting, and via a proactive approach to generating returns. Investors are used to harvesting the beta from markets, but will now need to harness volatility, market technicals and an understanding of financial history and behavioural finance.

Our view would be that this can only be done efficiently via a rules-based process, both transparent and repeatable. It is probably worth saying that experience counts, and we strongly favour experienced managers in our portfolios, not just those whose funds have gone up the most over the last one and or three years (the wrong pool to be fishing in).

It is thought that half of portfolio managers have only witnessed a bull market (since 2009), and that three-quarters were not around, professionally-speaking, for the ‘dotcom boom and bust’ of 1999/2000, when many retail investors were taken for a ride by the less scrupulous parts of this industry.

There is great change afoot in almost all asset classes, and those that have managed multi-manager and multi-asset class portfolios through and across different cycles hold a distinct advantage.
The microstructure of markets has changed with the marginal investor now a passive one and the majority of daily dealing being algorithmic, or at least defacto valuation-insensitive. Our view has
been that markets will trend more and be punctuated by bouts of excessive volatility.

A winning investment process will need to be able to maximise both these environments, seemingly contradictory though they may be. Success over the next decade or so will not be easy, far from it, and it is essential to have an answer as to how one will attempt to create positive real returns without a market tailwind, let alone a benign interest rate environment or central bank largesse.
Financial planning-led investment does concentrate the mind, as it should, and arguably is a slightly different, if still related, discipline to investment-led portfolio management.