Investment Philosophy

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Traditional investment managers strive to beat the market by attempting to predict the future. This is commonly called ‘active management’. Too often this proves costly and futile. Predictions are simply guesses and by holding the wrong stocks at the wrong time fund managers can miss the strong returns that markets provide whilst incurring the inevitable costs of regular trading. These costs are passed to the investor.

We wish to remove the uncertainty and potential for market underperformance from our investment strategy and as a consequence have designed a range of portfolios aiming to achieve the principles of the Efficient Market Hypothesis (Prof Eugene F, Fama, University of Chicago).

The hypothesis states:

• Current share prices incorporate all available information and expectations
• Current share prices are the best approximation of intrinsic company value
• Price changes are due to unforeseen events
• “Mispricings” do occur but not in predictable patterns that can lead to consistent outperfomance.

The implications of this are that:

• Active management strategies, where fund managers make choices, cannot consistently add value through share selection or market timing.
• Passive investment strategies, where the whole market is tracked, reward investors with market returns.

Removing the services of active fund managers also removes a significant layer of expense which means that we can achieve our aim of capturing market returns at a much lower overall cost.