Focus on the bank’s Investment Process
Mouhammed Choukeir, Chief Investment Officer for Kleinwort Hambros, and Alan Mudie, Head of Investment Strategy for Societe Generale Private Banking, jointly chair the SGPB Global Investment Committee. We asked them what this means for clients.
WHAT IS YOUR INVESTMENT PHILOSOPHY?
Mouhammed Choukeir - Our investment philosophy centres on three guiding principles. One, we believe asset allocation is the most important decision we make, and it should be actively managed. Essentially, we strive to get the big decisions right. Two, when assets are expensive, risk is not well rewarded; when assets are cheap, it is. Indeed, valuation is a near obsessive focus for us. Finally, we are nothing if not prudent, and believe the pain of losing money – the ultimate definition of risk – is much worse than the fleeting joy of spurious gains.
WHAT ARE THE DIFFERENT ASSETS THAT YOU INVEST IN? IF YOU ACTIVELY MANAGE THE PORTFOLIO BY CHANGING THE ASSET ALLOCATION, HOW DO YOU DETERMINE WHAT ASSET CLASSES ARE GOOD AND BAD VALUE PROPOSITIONS?
MC - We invest in a wide range of asset classes including cash, equities, bonds, commodities and hedge funds, and do so using a framework which puts the theory of our investment philosophy into practice. We focus incessantly on valuation, momentum1 and sentiment. At its simplest, when an asset is unloved, and cheap, we look kindly upon it. History shows the best returns are to be harvested from undervalued and unloved positions, particularly as momentum starts to trend upwards. The opposite if equally true: even quality assets can be bid to the point where they offer poor prospective returns, often a precursor to momentum turning. Ironically, at these times, many investors are far too complacent, oblivious to the actual levels of risk. Of course, none of this happens in a vacuum: the economic scenario is of critical importance, and we dispassionately gauge if the stage of the business cycle is fruitful for risk taking.
COULD YOU TELL US HOW YOUR ANALYSIS AND RESEARCH OUTPUT INTERSECTS WITH YOUR INVESTMENT STRATEGY AND RECOMMENDED PORTFOLIOS?
Alan Mudie - In fact, we have fully integrated our research into our investment process in order to ensure that we have a consistent and coherent approach, from A to Z. From the economic and cycle analysis to the evaluation of each asset class through the prism of the VaMoS2 framework which Mo just described, right through to determining which are the most attractive opportunities around which to build our clients’ individual asset allocations. From the specialists and analysts who pick the best securities, funds or structured products, to the experts who take into account our clients’ specific tax and regulatory requirements, right through to team who build the individual recommended portfolios. Our ambition is that the full strength and depth of SGPB’s resources in advice and portfolio management be deployed on behalf of each and every client.
HOW DO YOU DEFINE AND MANAGE RISK?
MC - The spirit of risk for investors is simple: the potential to lose the value of money by making – or not making – an investment. Ironically, taking no risk almost certainly condemns one to loss; while capital will be preserved, inflation corrodes value. Therefore risk taking is necessary, and preserving value should be a foundational goal for all investors. But not all risks are created equal. Our investment process seeks to identify favourable conditions for risk-taking in a way that skews the risk/reward trade-off in our favour.
IS IT BETTER TO CONCENTRATE ON ONE’S BEST IDEA OR TO SPREAD THE NET MUCH WIDER?
AM - We would view a concentrated bet on a top pick as speculation rather than investment. Potential performance is of course high, but so is the risk. Our approach is rather to construct a portfolio of high-conviction ideas, carefully selected for both their intrinsic merits and for what they bring to the portfolio as a whole. We size each position so that it can make a meaningful impact to our client’s portfolio without upsetting its balance.
Diversification across geographies, asset classes, currencies and so on gives our clients access to different sources of return, which complement each other to build a robust, coherent whole. As Mo said, risk for our clients is a permanent loss of purchasing power – diversified portfolio construction is a key way to mitigate that risk. And as my grandmother said, don’t put all your eggs in the same basket.
BUILDING TRUST THROUGH COMMUNICATION
Keeping clients fully informed is key to building a strong lasting relationship.
SGPB’s investment experts update our House Views on a monthly basis. These reports highlight the most attractive opportunities in our clients’ investment universe and recommended changes to asset allocation.
Ahead of potentially game-changing events such as the Brexit referendum or the US presidential election, the team publishes in-depth analysis of the risks and opportunities. We also organize regular conference call updates for our clients whenever necessary.
Our experts will be there to support you should you have any questions about your investments. They can be contacted through your private banker, investment advisor or portfolio manager.
1/ Technical indicator showing the market trend, on both the upside and the downside, over a given time period.
2/ The VaMoS investment approach, by combining economic, valuation, momentum and sentiment, guides us investment decision making across asset classes.