We aim to combine the best in both theory and practice, applied to the particular circumstances and objectives of each individual client situation.
The essence of our investment approach has a focus on risk management, flexibility, understanding fundamental issues, and long-term outcomes. We have summarised some of the key elements below, but will be very pleased to discuss this with clients in more detail. We see the investment philosophy and our practical approach to it as a key positive differentiator for Hub Wealth Management.
Each portfolio is specific to the particular client, and based on a carefully considered view of the client’s objectives, including their tolerance for volatility, timeframe, lifestyle needs, liquidity requirements and other factors.
Our first aim is not to expose clients to unnecessary risk. We focus on quality investments, proven strategies, and a variety of research to implement and manage client strategies. This still leaves us with a wide spectrum of choice range from cash and deposits, to bonds, shares, property, smaller companies, emerging markets, and other assets.
We avoid tax-driven schemes, and are careful not to be distracted by the latest fad, be it technology companies, managers offering outcomes too good to be true, or investments with fundamental problems of structure such as unlisted property trusts.
We believe that investment outcomes are an important element of a client’s strategy, but rarely are they the sole element. In almost every case, a strategy overlay is involved that has implications for tax, flexibility, income, estate planning and other elements.
The “bottom line” outcome is the main objective for clients and therefore for us. We carefully assess issues such as the appropriate tax structure, the costs associated with an investment, how tax-effective the returns are likely to be from a particular investment, liquidity and the potential of the investment to deliver the required outcome reliably.
Investment Theory and Practice
One of the difficulties for investors is that there is now an abundance of “experts” and market “noise”. The media emphasises the terrible, the amazing, the rorts and the magicians of investment.
Further, much of the information in the press is really quoting people who may be very genuine in their beliefs, but also have particular niches or specific interest without any sense of impartiality or broader insight.
At Hub, we are unshackled by any institutional, fund manager or insurance company ownership. We also have the benefit of considerable experience in investment and financial advice, including working through sharp bull and bear markets over the past 20 years.
For all of these reasons, we have undertaken extensive research of the best genuine thinking and practice in the area of investment.
The first step in this involved a comprehensive review of the evolving theory of investment from genuine academics and major investors around the world. Key questions include:
- How can we most effectively achieve genuine investment diversification to reduce risk?
- How can we manage periods of market volatility to deliver acceptable levels of portfolio returns?
- Do fund managers add value?
- Does it still make sense to maintain a consistent portfolio mix of assets through all stages of an investment cycle, or she we be more active to manage risk?
- How should we implement strategies most effectively in terms of quality, diversification, cost and tax?
Through this research, which included extensive review, works from Nobel prize-winners such as Fama and French, leading consultants such as Ibbotson and Associates, Xiong and Idzorek, we identified two quite different approaches that make sense in both theory and practice. We also confirmed some simple truths of investment:
Many Australian investors have less genuine diversification within their portfolios than they believe. This is because most managers hold portfolios similar to the relevant investment index in Australian shares or listed property, and Australian markets themselves lack significant diversification in some areas. For example, more than one-third of the Australian listed property index is made up of a single company.
Many fund managers do not add value after allowing for fees and tax. Combining different managers who are doing similar things does not really provide diversification.
The experience of major global investors such as the Yale and Harvard endowment funds over long periods backs up more recent research to show that some active asset allocation can add value. This requires a variety of inputs to determine when assets are expensive relative to the potential return they offer, and relative to other investment alternatives. The emphasis here is on risk management and capital preservation – vital themes in our investment approach.
Trading in and out of markets or investments tends to be value-destroying. However, simply remaining invested fully at all times – the ”time in the market” approach – can expose portfolios to significant volatility and prolonged poor performance.