The last few years have proved challenging to say the least for financial markets, with investors grappling with the effects of Brexit, Donald Trump, a pandemic and now the emergence of war in Europe. Against this backdrop, long term investors have attempted to navigate considerable uncertainty with their long-term plans remaining intact, however for the majority, the age-old approach of ‘time-in the market’ has proven to be a costly strategy.
Keen investors and observers of financial markets will know that maintaining diversification between asset classes and geographies is key in any long-term strategy, however what happens when asset classes stop performing the way they used to? More specifically, what happens when traditionally low risk assets start to behave differently? Movements over recent years have challenged long-held assumptions about the relationship between asset classes and risk, leading many investors questioning whether traditional asset management strategies still hold up in modern markets.
While the traditional long-hold approach to investing, whereby an investor maintains a static portfolio allocation over the long term, has proven to be an effective strategy in the past, it is our view that shifts in financial markets over the last decade have reduced the efficiency of this approach. Particularly, the increase in correlation between equity and non-equity assets in recent years, combined with increased interconnectivity of global markets on the back of globalisation, as well as the surge in volatility of assets which have traditionally been perceived as low risk, such as government bonds. As a result, it is our view that a static asset allocation approach is no longer effective as a long-term investment strategy.
While the majority of asset managers follow the traditional long-hold approach, at OCM, we recognise the need to be dynamic when it comes to structuring a portfolio. Our investment strategy focuses on an active, risk-managed approach, which aims to deliver a pre-defined ‘outcome’ at an agreed level of risk. Our proactive approach focuses on what clients are looking to achieve, rather than trying to ‘beat’ the market or ‘ride the rollercoaster’ as we say.
It is our fundamental view that all assets, apart from cash and ultra-low-risk government bonds, are subject to varying degrees of market risk during different phases of the economic cycle. As such, OCM’s flagship Outcome Based Investment (OBI) strategy is based on the principle that by cyclically rotating assets throughout the economic cycle, we can produce higher risk-adjusted returns over the long term. In doing so, we can reduce downward drags on portfolio performance by removing assets expected to erode returns in this phase of the cycle, in favour of those with a more positive outlook. We do not try to ‘time’ the market, but to hold the right assets at the right time, based on cycle positioning.
The effectiveness of the OBI strategy versus a traditional long hold approach is clear to see over the long term, with the strategy providing particular value to investors during significant market events, such as in 2008, 2011, 2020, and during the recent invasion of Ukraine. As long-term investors, we cannot remove all negative shocks from the market, however by taking a dynamic approach, we are able to add value for investors over the long-term, and adapt to the ever-changing market environment. Modern markets demand a more active approach, and our OBI MPS solution provides our partners with the tools to navigate all market conditions over the long term for their clients.
To discuss our actively managed portfolio options, don’t hesitate to get in touch with the team on 01604 621467.
Past performance cannot be used as a guide to future performance and the value of your investment will fall as well as rise in value. You may not get back all of your investment and the final value of your investment will depend on the performance of your portfolio. The actual performance of an individual client’s portfolio may differ due to different funds being used and being restricted in relation to certain asset allocations. Performance figures quoted include fund manager charges but exclude adviser, discretionary, custodian and switch charges. Unless stated, income is reinvested into the portfolio. The information contained in in this document is for information purposes only. It does not constitute advice or a recommendation or an offer or solicitation for investment.