Investment philosophy and process

We aim to preserve and grow the real value of our clients’ capital over time

Our investment philosophy

In an investment world that is sometimes unpredictable, often irrational and all too often short-term in its outlook, we believe investment success can only be achieved by focusing on a small number of guiding principles. These principles inform all aspects of our investment thinking:

  • that investors are particularly sensitive to losses rather than averse to taking risk
  • that long-term success can only be judged relative to the returns from cash and inflation
  • that equity will be the main driver of real returns, but that these returns require patience and discipline to achieve
  • that short-term market movements are impossible to predict
  • that portfolio diversification through the use of non-equity investments helps smooth the returns for investors

Our investment process

Turning these guiding principles into real world investment decision-making in turn requires a robust, disciplined and repeatable investment process. At Tilney our process has been created around the following key beliefs:

  • we are top-down asset allocators – we apply a thorough understanding of the macroeconomic environment to optimise portfolio asset allocation through the economic cycle
  • we believe in the principle of diversification – across asset class, geographic region, industry sector, fund manager, instrument and stock
  • we embrace the use of both funds and single securities in portfolio construction
  • we use both active and passive management techniques to maximise investment returns
  • the independence of our research process is fundamental to everything we do

Strategic and tactical asset allocation

Strategic

Our proprietary risk modelling tool Efficient Frontier helps create the most effective long-term strategic asset allocation to meet a client’s stated risk tolerance. Efficient Frontier uses our long-term assumptions of asset class returns and risk to determine the return outcomes a portfolio could experience.

Tactical

While Efficient Frontier will help set the optimal long-term allocation for a portfolio, shorter-term movements in valuation or macro-economic conditions may require tactical changes. These changes are determined by our Asset Allocation Committee. The committee meets quarterly to review macroeconomic developments and provide the qualitative judgements that will determine the size and direction of any required tactical changes.

Fund selection

With top-down asset allocation establishing the overall framework of our investment strategy, fund selection determines the instruments we use to express that strategy. We believe getting both the asset allocation and fund selection right creates the perfect synergy to provide our clients with the best outcomes, preserving and growing the real value of their capital over time.

Across Europe, there are more than 30,000 possible funds to choose from – if you were looking for a portfolio of, say, 25 funds, that means there are more possible fund combinations than there are atoms in the universe! Unfortunately, studies show that most fund managers fail to add value for investors over the long term once their fees are taken into account. At Tilney we carry out independent research to try to identify those managers with true long-term talent, rather than short-term luck.

To do this, we have one of the largest, dedicated fund research departments in the industry, which follows a structured and intellectually rigorous process combining qualitative and quantitative techniques to identify best-in-class fund managers. In particular, we look for:

  • Clear objectives, based on a reproducible process and a long time horizon supported by a stable and well-resourced team
  • High conviction, where a manager is focused on growing wealth from stocks they believe in rather than being driven by an index
  • Independent verification and validation of the manager’s approach by careful portfolio and performance analysis – looking for insight into the fundamental drivers of fund returns
  • Ongoing adherence to a successful investment process through careful monitoring of the manager to ensure they are staying true to their principles whilst adapting as appropriate over time

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Investment services for US-connected clients