Long-term thinking and the importance of people power

We live in a world of 24-hour news with information feeding instantly to screens that bombard us from walls, desks and our phones.

Gary Potter

Joint Head of Multi-Manager

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Risk Disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.

Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.

We live in a world of 24-hour news with information feeding instantly to screens that bombard us from walls, desks and our phones.

As a result, we’re increasingly connected to the wider world we live in – a trend that’s broadened our perspectives in some ways but can narrow them in others if we’re not careful. Nowhere is this more apparent than in the world of investment.

A tweet from the President can move the market in seconds, the speed and severity of some reactions making it hard to focus on anything other than the short term.

Risk Disclaimer

Please note that this is a marketing communication and does not constitute investment advice or a recommendation to buy or sell investments nor should it be regarded as investment research. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of its dissemination. Views are held at the time of preparation.

Avoid a narrowing perspective

We think this is a mistake – yes, be aware of near-term opportunities and risks, but never lose sight of the perspective that really matters – the long-term one. After all, as individuals we are rarely investing to achieve an outcome in the next days, weeks or even months. More sensibly, investments are made with a longer-term objective in mind, which might be an income in retirement or growing a pot of savings to help the kids through university, for example.

Past performance is not a guide to future performance. Stock market and currency movements mean the value of investments and the income from them can go down as well as up and you may not get back the original amount invested.

Getting the right mix

It’s the long-term goals our clients are aiming for, as well as tried and tested investment principles, that form the basis of how we manage our portfolios. Keeping these to the fore of our thinking helps us turn down the distraction of short-term noise. Diversification is perhaps the most fundamental, as spreading your portfolio across a host of different investments provides two key benefits: access to a range of opportunities for income or growth, and spreads the risks that are an inherent part of investment.

Of course, the types of investment – individual funds across a range of asset classes – we consider when building a portfolio are driven by what outcome we are seeking to achieve. There are a number of elements to these asset allocation decisions. First, there are strategic considerations that are typically long-term in nature. For an income portfolio, for instance, there will be an emphasis on yield-generating investments through the likes of bond and equity income funds alongside some of the more esoteric options that exist today. Contrast the asset allocations of our Distribution and Boutique portfolios and you’ll see how different target outcomes lead to different asset mixes.

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Related capability

Multi-Manager

Second comes tactical moves, where active adjustments can be made to account for near-term opportunities and risks. Whilst Brexit associated uncertainty may have prompted a relatively cautious stance towards UK equities, there comes a time when an upward readjustment of positioning to take advantage of valuations and the opportunities that do exist makes sense.

Get active

This leads us to another principle – that of active management and its potential to add real value over the long term. Such is our conviction here that we spend most of our time and effort picking the best active fund managers. After all, it’s been proven almost impossible to reliably predict broader asset moves from year to year, but we firmly believe that talented specialist managers can add value within their fields of expertise on a consistent basis.
 

People power

Interestingly, this brings us full circle. Our clients are people investing for a future outcome and we try never to lose sight of that. At the same time, the underlying managers we entrust our clients’ hard-earned savings to are also people – understanding what makes them tick, how they think and work forms a key element of our investment process. Again, long-termism is important because we want to invest early with managers building what we believe will be a long and impressive track record that benefits our clients.

“Don’t forget – economies are cyclical so neither booms nor busts last forever. Also, markets experience good times and bad times with disappointing periods often followed by strong recoveries. It’s important to keep a balanced perspective and think long-term.”

Gary Potter, Co-head, BMO Multi-Manager Team