Our approach is divided into two stages: strategic asset allocation and tactical asset allocation:
- Strategic Asset Allocation process: identifies the appropriate mix of asset classes for various different broad risk and return profiles. The focus is on matching our long term capital market expectations with the requirements of different client types. We consider our in-house 20-year return forecasts, current asset class/regional valuations and a large degree of qualitative overlay.
- Tactical Asset Allocation process: devises short and medium term deviations away from the strategic asset allocation in order to add value in terms of either increased return or reduced risk. The committee of senior investment managers and strategists consider a set of leading macroeconomic indicators, market sentiment scores and their own research. The results are established by taking an average of the individual views.
- Security Selection Process
We have 56 sector specialists who assign buy, hold and sell recommendations to our investment universe of UK and overseas equities. Smith & Williamson puts particular emphasis on balance sheet quality, cash generation and long term strategic drivers, as well as the qualitative views of the individual analysts. We are long term fundamentally driven investors the sustainability of each business is a key part of the process so understanding the ESG factors affecting each company is a part of the process of evaluation of the likely future success of each investment we make. The stock selection process is supplemented by our fund analysts and fixed interest specialists who produce recommendations for bonds, alternatives, real estate and collective investments.
All our analysts are also investment managers with client responsibility. This ensures that our research is produced from a practical buy side perspective and that our analysts have a stake in the ideas they produce (as they will buy these for their own clients).
The output of the asset allocation and security selection processes are recommendations rather than mandatory actions or central model portfolios. We believe that it is the individual investment managers who know their clients best and as such they are the best placed to decide how to implement asset allocation and security selection decisions. The manager is responsible for considering the client’s risk profile (capacity for loss), restrictions (ethical or asset class), time horizon, return objectives and other constraints when structuring a portfolio. Each client is able to set their own restrictions on their portfolio including ethical and ESG constraints.